UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES

Investment Company Act file number: 811-07410
 
Exact name of registrant as specified in charter: Delaware Investments® National Municipal
  Income Fund
 
Address of principal executive offices: 2005 Market Street
Philadelphia, PA 19103
 
Name and address of agent for service: David F. Connor, Esq.
2005 Market Street
Philadelphia, PA 19103
 
Registrant’s telephone number, including area code: (800) 523-1918
 
Date of fiscal year end: March 31
 
Date of reporting period: March 31, 2016



Item 1. Reports to Stockholders

Table of Contents

 

 

 

 

 

Delaware Investments® Closed-End Municipal Bond Funds

 

Annual report

 

March 31, 2016

 

 

 

 

 

 

 

 

The figures in the annual report for Delaware Investments Closed-End Municipal Bond Funds represent past results, which are not a guarantee of future results. A rise or fall in interest rates can have a significant impact on bond prices. Funds that invest in bonds can lose their value as interest rates rise.

 

Closed-end funds

 

 

LOGO


Table of Contents

Table of contents

 

Portfolio management review

     1   

Fund basics

     3   

Security type / sector / state allocations

     4   

Schedules of investments

     6   

Statements of assets and liabilities

     24   

Statements of operations

     25   

Statements of changes in net assets

     26   

Statements of cash flows

     28   

Financial highlights

     29   

Notes to financial statements

     32   

Report of independent registered public accounting firm

     40   

Other Fund information

     41   

Board of trustees / directors and officers addendum

     43   

About the organization

     46   

 

Delaware Management Holdings, Inc. and its subsidiaries (collectively known by the marketing name of Delaware Investments) are wholly owned subsidiaries of Macquarie Group Limited, a global provider of banking, financial, advisory, investment, and funds management services. For more information, including press releases, please visit delawareinvestments.com/closed-end.

 

Unless otherwise noted, views expressed herein are current as of March 31, 2016, and subject to change for events occurring after such date.

 

Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested.

 

Mutual fund advisory services are provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. Delaware Investments, a member of Macquarie Group, refers to Delaware Management Holdings, Inc. and its subsidiaries. Macquarie Group refers to Macquarie Group Limited and its subsidiaries and affiliates worldwide.

 

Neither Delaware Investments nor its affiliates noted in this document are authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of these entities do not represent deposits or other liabilities of Macquarie Bank Limited (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities, unless noted otherwise.

 

©2016 Delaware Management Holdings, Inc.

 

All third-party marks cited are the property of their respective owners.


Table of Contents

Portfolio management review

Delaware Investments® Closed-End Municipal Bond Funds

April 12, 2016 (Unaudited)

 

Economic conditions

For the fiscal year ended March 31, 2016, the U.S. economy continued along its slow but steady growth path. The country’s gross domestic product (GDP) — a widely used measure of economic performance — grew by 2.4% in calendar year 2015, according to the U.S. Commerce Department, matching the prior year’s result. The expansion, partly driven by increased consumer spending, was accompanied by further gains in the national labor market. At the Funds’ fiscal year end, the U.S. jobless rate was 5.0%, down half a percentage point from 12 months earlier. Nevertheless, a weak global economic backdrop coupled with declining corporate profits contributed to the decision of the U.S. Federal Reserve to slow the pace of its widely anticipated interest rate increases. Although the Fed did ultimately raise its benchmark federal funds rate in December 2015 — the first such rate hike in nine years — that increase came months later than investors originally expected. What’s more, the Fed opted to leave rates alone for the rest of the period, citing continued economic uncertainty and a seemingly manageable level of inflation.

Municipal bond market conditions

Against this economic backdrop, the Barclays Municipal Bond Index, a measure of the long-term, investment grade tax-exempt bond market, returned +3.98% for the Funds’ fiscal year. Early on, municipal bonds struggled in an environment of reduced demand coupled with increased supply, as issuers actively sought to refinance outstanding debt prior to the Fed’s expected rate hikes. Beginning in the third quarter of 2015, however, and continuing through much of the rest of the fiscal year, the municipal bond market rallied. It ultimately finished the 12 months in positive territory, as demand picked up and investors concluded, correctly, that the Fed would take its time raising rates.

Overall, credit spreads continued to narrow, meaning that investors finished the 12 months somewhat more willing to accept credit risk in exchange for income. Lower- and below-investment-grade bonds generally outperformed their higher-quality counterparts. Meanwhile, the municipal yield curve flattened, indicating that short-dated bonds saw their yields rise modestly, while intermediate- and longer-maturity issues saw their yields drift downward, while their prices rose accordingly (bond yields and prices move in opposite directions).

Sticking to our strategy

In managing the three Funds, we followed the consistent strategy we regularly use, regardless of market conditions. We apply a bottom-up investment approach — meaning we invest on an issuer-by-issuer basis — to select those securities we believe provide a favorable risk-reward balance for our shareholders.

Because of our confidence in our team’s credit research capabilities, we generally overweight lower-investment-grade bonds, and, when

consistent with the Funds’ objectives, we also maintain allocations to bonds rated below investment grade. Many of our lower- and below-investment-grade holdings are longer dated, as we believe they provide better opportunities for us to add long-term value for shareholders.

During the fiscal year, we made relatively few changes to the three Funds’ portfolios. This reflected the fact that many of the Funds’ older bonds were issued during periods of higher interest rates and offered attractive yields, especially compared with newer bonds offering lower coupons. In other words, we were reluctant to exchange existing holdings for more recent bonds with less attractive performance characteristics.

Those relatively few new purchases we did make were primarily funded with the proceeds of bond calls and maturities taking place in each of the Funds’ portfolios. In the rare instances we had capital to invest, in our view we did so in the best available opportunities we could find in each Fund’s investment universe, with many of the new additions consisting of bonds with maturities ranging from 20 to 30 years, representing the portion of the yield curve where we saw good long-term potential. Our new purchases included various lower-rated charter school issues, as we have continued to find increasing numbers of opportunities in this area of the market. We also invested in the healthcare sector, specifically continuing care retirement community (CCRC) bonds, in Delaware Investments Colorado Municipal Income Fund, Inc. and Delaware Investments Minnesota Municipal Income Fund II, Inc.

In Delaware Investments Minnesota Municipal Income Fund II, Inc., we encountered a relatively high number of bond calls. Because of supply patterns in the state, a relatively high percentage of the Fund’s portfolio was originally acquired during a several-year span more than a decade ago, at a time of much higher interest rates. Now, many of the bonds are eligible to be redeemed or called — an attractive situation for borrowers, but a challenging situation for the Fund, as it has left us with a pool of cash requiring reinvestment in a less favorable interest rate environment. Our approach has been to invest in lower-rated Minnesota issues when possible, while also periodically adding highly liquid, highly rated bonds as placeholders as we await future opportunities that may more directly fit our credit- and value-oriented management strategy.

Another strategy we periodically employed in all three Funds, and most often in Delaware Investments Colorado Municipal Income Fund, Inc., was to sell some very short-dated bonds whose performance prospects we found limited and reinvest the proceeds in longer-dated general obligation bonds, whose income characteristics we found more desirable.

 

 

(continues)   1


Table of Contents

Portfolio management review

Delaware Investments® Closed-End Municipal Bond Funds

 

Individual performance effects

In Delaware Investments Colorado Municipal Income Fund, Inc., we saw particularly good results from lower-investment-grade hospital bonds of Colorado Health Facilities Authority for Total Long-Term Care and nonrated issues for the Tallyn’s Reach Metropolitan District. These bonds returned more than 12% and 8%, respectively, for the fiscal year, significantly outpacing the return of the benchmark.

In contrast, the Fund’s weakest-performing bonds were generally pre-refunded issues, which were held back by the securities’ very short maturity dates and very high credit quality — both out-of-favor characteristics during the Funds’ fiscal year. Specifically, the Fund’s holdings in bonds for the Adams & Arapahoe Counties Joint School District No. 28J and the Colorado State Board of Governors University Enterprise System produced only slightly positive returns.

In Delaware Investments National Municipal Income Fund, the strongest-performing securities by a wide margin were long-dated tobacco securitization bonds issued in both California and Ohio. This debt, backed by tobacco industry revenues, fared very well; demand for the bonds picked up for these securities in light of perceived improvements in the issuers’ credit quality.

Although most tobacco bonds were exceptional performers over the 12 months, the Fund’s position in Railsplitter (Illinois) Tobacco Settlement Authority bonds managed only a very modest gain, owing to the bonds’ very short call date and investment grade credit rating. Elsewhere, the Fund’s holdings in Gila County (Arizona) Unified School District No. 10 bonds also produced a minimally positive return for the fiscal year.

Delaware Investments Minnesota Municipal Income Fund II, Inc. benefited from positions in Deephaven Charter School bonds for the Eagle Ridge Academy Project and bonds for the Minneapolis National Marrow Donor Program project. Because these securities were pre-refunded during the fiscal year, they received an immediate boost in their prices as their credit quality improved, making their relatively high income stream even more attractive to investors. These bonds gained more than 20% and 9%, respectively, for the fiscal year.

The Fund’s weakest performer was St. Paul Port Authority Revenue corporate-backed industrial development revenue solid-waste bonds for Gerdau Steel, a Brazilian steel company. These lower-investment-grade bonds with a 2037 maturity date struggled because of the twin headwinds of declining steel prices coupled with Brazil’s economic weakness and political turmoil. Although we trimmed the Fund’s allocation to these bonds, commensurate with our assessment of their risk, we remained comfortable maintaining a position in these credits. In fact, demand for the securities increased toward the end of the fiscal year, allowing the bonds to regain a portion of their lost value. To a lesser extent, the Fund also saw subpar results from a position in charter school bonds for Academia Cesar Chavez, as negative investor sentiment weighed on these credits.

 

 

2


Table of Contents

Fund basics

 

 

Delaware Investments®

Colorado Municipal Income Fund, Inc.

As of March 31, 2016 (Unaudited)

Fund objective

The Fund seeks to provide current income exempt from both regular federal income tax and Colorado state personal income tax, consistent with the preservation of capital.

Total Fund net assets

$76 million

Number of holdings

87

Fund start date

July 29, 1993

CUSIP number

246101109

Delaware Investments

Minnesota Municipal Income Fund II, Inc.

As of March 31, 2016 (Unaudited)

Fund objective

The Fund seeks to provide current income exempt from both regular federal income tax and Minnesota state personal income tax, consistent with the preservation of capital.

Total Fund net assets

$173 million

Number of holdings

172

Fund start date

Feb. 26, 1993

CUSIP number

24610V103

Delaware Investments

National Municipal Income Fund

As of March 31, 2016 (Unaudited)

Fund objective

The Fund seeks to provide current income exempt from regular federal income tax, consistent with the preservation of capital.

Total Fund net assets

$68 million

Number of holdings

161

Fund start date

Feb. 26, 1993

CUSIP number

24610T108

 

 

3


Table of Contents

Security type / sector / state allocations

As of March 31, 2016 (Unaudited)

Sector designations may be different than the sector designations presented in other Fund materials.

 

Delaware Investments®

Colorado Municipal Income Fund, Inc.

 

Security type / sector    Percentage  
of net  
assets  
 

 

 

Municipal Bonds*

     139.01%     

Corporate-Backed Revenue Bonds

     4.73%     

Education Revenue Bonds

     26.74%     

Electric Revenue Bonds

     3.38%     

Healthcare Revenue Bonds

     42.25%     

Lease Revenue Bonds

     5.82%     

Local General Obligation Bonds

     14.74%     

Pre-Refunded/Escrowed to Maturity Bonds

     5.74%     

Special Tax Revenue Bonds

     24.99%     

Transportation Revenue Bonds

     7.85%     

Water & Sewer Revenue Bond

     2.77%     

 

 

Total Value of Securities

     139.01%     

 

 

Liquidation Value of Preferred Stock

     (39.59)%    

 

 

Receivables and Other Assets Net of Liabilities

     0.58%     

 

 

Total Net Assets

     100.00%     

 

 

* As of the date of this report, Delaware Investments Colorado Municipal Income Fund, Inc. held bonds issued by or on behalf of territories and the states of the United States as follows:

State / territory    Percentage  
of net  
assets  
 

 

 

Colorado

     136.80%     

Guam

     1.46%     

U.S. Virgin Islands

 

    

 

0.75%  

 

  

 

 

 

Total Value of Securities

 

    

 

139.01%  

 

  

 

 

 

 

Delaware Investments

Minnesota Municipal Income Fund II, Inc.

 

Security type / sector    Percentage  
of net  
assets  
 

 

 

Municipal Bonds*

     141.35%     

Corporate-Backed Revenue Bonds

     5.94%     

Education Revenue Bonds

     19.56%     

Electric Revenue Bonds

     10.12%     

Healthcare Revenue Bonds

     33.52%     

Housing Revenue Bonds

     3.26%     

Lease Revenue Bonds

     15.01%     

Local General Obligation Bonds

     8.11%     

Pre-Refunded/Escrowed to Maturity Bonds

     18.48%     

Special Tax Revenue Bonds

     5.53%     

State General Obligation Bonds

     15.30%     

Transportation Revenue Bonds

     4.46%     

Water & Sewer Revenue Bonds

     2.06%     

 

 

Total Value of Securities

     141.35%     

 

 

Liquidation Value of Preferred Stock

     (43.32)%    

 

 

Receivables and Other Assets Net of Liabilities

     1.97%     

 

 

Total Net Assets

     100.00%     

 

 

* As of the date of this report, Delaware Investments Minnesota Municipal Income Fund II, Inc. held bonds issued by or on behalf of territories and the states of the United States as follows:

 

State / territory    Percentage  
of net  
assets  
 

 

 

Guam

     0.57%     

Minnesota

 

    

 

140.78%  

 

  

 

 

 

Total Value of Securities

 

    

 

141.35%  

 

  

 

 

 
 

 

4


Table of Contents

    

 

    

 

Delaware Investments®

National Municipal Income Fund

Security type / sector   

Percentage    

of net         

assets        

Municipal Bonds*

   140.67%   

Corporate-Backed Revenue Bonds

   12.75%   

Education Revenue Bonds

   21.41%   

Electric Revenue Bonds

   4.04%   

Healthcare Revenue Bonds

   20.64%   

Housing Revenue Bond

   0.68%   

Lease Revenue Bonds

   9.19%   

Local General Obligation Bonds

   2.44%   

Pre-Refunded/Escrowed to Maturity Bonds

   15.28%   

Special Tax Revenue Bonds

   21.70%   

State General Obligation Bonds

   3.62%   

Transportation Revenue Bonds

   23.40%   

Water & Sewer Revenue Bonds

   5.52%   

 

Short-Term Investment

   1.47%   

 

Total Value of Securities

   142.14%   

 

Liquidation Value of Preferred Stock

   (44.11)%  

 

Receivables and Other Assets Net of Liabilities

   1.97%   

 

Total Net Assets

   100.00%   

* As of the date of this report, Delaware Investments National Municipal Income Fund held bonds issued by or on behalf of territories and the states of the United States as follows:

 

State / territory   

Percentage    

of net         

assets        

Alabama

   2.26%   

Alaska

   0.50%   

Arizona

   10.84%   

California

   18.91%   

Colorado

   1.44%   

District of Columbia

   0.40%   

Florida

   6.84%   

Georgia

   4.29%   

Guam

   2.19%   

Hawaii

   0.49%   

Idaho

   1.57%   

Illinois

   5.83%   

Indiana

   0.95%   

Kansas

   0.38%   

Louisiana

   4.33%   

Maine

   0.50%   

Maryland

   3.22%   

Massachusetts

   1.41%   

Michigan

   1.67%   

Minnesota

   5.25%   

Mississippi

   1.47%   

Missouri

   4.00%   

New Hampshire

   0.50%   

New Jersey

   7.80%   

New Mexico

   0.80%   

New York

   17.81%   

North Carolina

   0.43%   

Ohio

   2.67%   

Oregon

   3.82%   

Pennsylvania

   14.52%   

Texas

   10.87%   

Virginia

   0.88%   

Washington

   1.33%   

West Virginia

   0.80%   

Wisconsin

   0.75%   

Wyoming

   0.42%   

 

Total Value of Securities

 

 

  

142.14%   

 

 

 

5


Table of Contents

Schedules of investments

Delaware Investments® Colorado Municipal Income Fund, Inc.

March 31, 2016

 

     Principal
Amount°
    

Value

(U.S. $)

 

 

 

Municipal Bonds – 139.01%

  

  

 

 

Corporate-Backed Revenue Bonds – 4.73%

  

Public Authority for Colorado Energy Revenue 6.25% 11/15/28

     865,000       $     1,113,169   

Public Authority of Colorado Energy Natural Gas Revenue Series 2008 6.50% 11/15/38

 

    

 

1,750,000

 

  

 

    

 

2,472,750

 

  

 

     

 

 

 
     

 

 

 

3,585,919

 

  

     

 

 

 

Education Revenue Bonds – 26.74%

  

  

Colorado Educational & Cultural Facilities Authority Revenue 144A 5.00% 7/1/36 #

     500,000         520,250   

5.125% 11/1/49

     765,000         786,466   

144A 5.25% 7/1/46 #

     500,000         519,405   

(Academy Charter School Project) 5.50% 5/1/36 (SGI)

     1,720,000         1,726,089   

(Charter School - Atlas Preparatory School) 144A 5.25% 4/1/45 #

     700,000         700,994   

(Charter School - Community Leadership Academy) 7.45% 8/1/48

     500,000         598,250   

(Charter School - Peak to Peak Charter) 5.00% 8/15/34

     1,000,000         1,132,030   

(Improvement - Charter School - University Lab School Building) 144A 5.00% 12/15/45 #

     500,000         504,560   

(Johnson & Wales University) Series A 5.25% 4/1/37

     900,000         1,025,784   

(Liberty Charter School) Series A 5.00% 1/15/44

     1,000,000         1,093,590   

(Littleton Charter School Project) 4.375% 1/15/36 (AGC)

     1,200,000         1,207,716   

(Skyview Charter School) 144A 5.50% 7/1/49 #

     750,000         806,310   

(Student Housing - Campus Village Apartments) 5.00% 6/1/23

     1,065,000         1,144,875   

Colorado School of Mines Series B 5.00% 12/1/42

     2,500,000         2,833,900   
     Principal
Amount°
    

Value

(U.S. $)

 

 

 

Municipal Bonds (continued)

  

  

 

 

Education Revenue Bonds (continued)

  

  

Colorado State Board of Governors (University Enterprise System) Series A 5.00% 3/1/39

     10,000       $ 11,001   

University of Colorado 5.00% 6/1/31

     3,185,000         3,662,718   

Series A 5.00% 6/1/33

     1,000,000         1,168,790   

Western State College 5.00% 5/15/34

 

    

 

750,000

 

  

 

    

 

818,325

 

  

 

     

 

 

 
     

 

 

 

    20,261,053

 

  

     

 

 

 

Electric Revenue Bonds – 3.38%

  

  

Colorado Springs Utilities System Improvement Revenue Series A 5.00% 11/15/45

     750,000         880,020   

Platte River Power Authority Series HH 5.00% 6/1/28

 

    

 

1,500,000

 

  

 

    

 

1,686,180

 

  

 

     

 

 

 
     

 

 

 

2,566,200

 

  

     

 

 

 

Healthcare Revenue Bonds – 42.25%

  

  

Aurora Hospital Revenue (Children’s Hospital Association Project) Series A 5.00% 12/1/40

     4,000,000         4,379,960   

Colorado Health Facilities Authority Revenue (Catholic Health Initiatives) Series A 5.00% 7/1/39

     750,000         808,395   

Series A 5.00% 2/1/41

     2,400,000         2,625,120   

Series A 5.25% 2/1/33

     1,625,000         1,811,907   

Series A 5.25% 1/1/45

     1,000,000         1,142,750   

Series D 6.125% 10/1/28

     750,000         835,597   

(Christian Living Community Project) 6.375% 1/1/41

     615,000         669,809   

Series A 5.75% 1/1/37

     885,000         895,682   

(Covenant Retirement Communities Inc.) 5.00% 12/1/35

     1,000,000         1,102,280   

Series A 5.75% 12/1/36

     1,000,000         1,141,070   

(Evangelical Lutheran Good Samaritan Society) 5.00% 6/1/28

     1,250,000         1,428,350   

5.50% 6/1/33

     2,000,000         2,325,100   

5.625% 6/1/43

     1,000,000         1,167,050   
 

 

6


Table of Contents

    

 

    

    

 

     Principal
Amount°
    

Value

(U.S. $)

 

 

 

Municipal Bonds (continued)

  

  

 

 

Healthcare Revenue Bonds (continued)

  

Colorado Health Facilities Authority Revenue (Healthcare Facilities - American Baptist) 8.00% 8/1/43

     500,000       $ 601,585   

(Mental Health Center of Denver Project) Series A
5.75% 2/1/44

     1,500,000         1,722,210   

(National Jewish Health Project) 5.00% 1/1/27

     500,000         529,245   

(Sisters of Charity of Leavenworth Health System) Series A 5.00% 1/1/40

     4,750,000         5,260,387   

Sunny Vista Living Center Series A 6.25% 12/1/50

     505,000         522,720   

Vail Valley Medical Center Project 5.00% 1/15/35

     1,250,000         1,462,387   

Denver Health & Hospital Authority Health Care Revenue (Recovery Zone Facilities) 5.625% 12/1/40

     750,000         830,107   

University of Colorado Hospital Authority Revenue Series A 6.00% 11/15/29

 

    

 

650,000

 

  

 

    

 

749,379

 

  

 

     

 

 

 
     

 

 

 

    32,011,090

 

  

     

 

 

 

Lease Revenue Bonds – 5.82%

  

  

Aurora Certificates of Participation Series A 5.00% 12/1/30

     630,000         708,687   

Colorado Building Excellent Schools Today Certificates of Participation Series G 5.00% 3/15/32

     2,000,000         2,297,800   

Pueblo County Certificates of Participation (County Judicial Complex Project) 5.00% 9/15/42 (AGM)

 

    

 

1,250,000

 

  

 

    

 

1,401,950

 

  

 

     

 

 

 
     

 

 

 

4,408,437

 

  

     

 

 

 

Local General Obligation Bonds – 14.74%

  

Adams & Weld Counties School District No 27J Brighton 4.00% 12/1/30

     700,000         790,937   
     Principal
Amount°
    

Value

(U.S. $)

 

 

 

Municipal Bonds (continued)

  

  

 

 

Local General Obligation Bonds (continued)

  

Adams 12 Five Star Schools 5.00% 12/15/25

     250,000       $ 320,497   

Arapahoe County School District No. 1 Englewood 4.00% 12/1/31

     1,000,000         1,121,320   

5.00% 12/1/31

     2,935,000         3,430,986   

Beacon Point Metropolitan District 5.00% 12/1/30 (AGM)

     600,000         708,954   

Denver City & County (Better Denver & Zoo) Series A 5.00% 8/1/25

     650,000         731,770   

Denver International Business Center Metropolitan District No. 1 5.00% 12/1/30

     650,000         686,738   

Eaton Area Park & Recreation District 5.25% 12/1/34

     190,000         199,568   

5.50% 12/1/38

     245,000         261,430   

Garfield Pitkin & Eagle Counties School District No. RE-1 Roaring Fork 4.00% 12/15/31

     700,000         781,655   

Jefferson County School District No. R-1 5.25% 12/15/24

     750,000         963,458   

Pueblo County School District No. 70 5.00% 12/1/31

     250,000         290,820   

Rangely Hospital District 6.00% 11/1/26

 

    

 

750,000

 

  

 

    

 

878,655

 

  

 

     

 

 

 
     

 

 

 

    11,166,788

 

  

     

 

 

 

Pre-Refunded/Escrowed to Maturity Bonds – 5.74%

  

Adams & Arapahoe Counties Joint School District No. 28J (Aurora) 6.00% 12/1/28-18§

     600,000         681,522   

Boulder Larimer & Weld Counties St. Vrain Valley School District No. Re-1J 5.00% 12/15/33-18§

     425,000         471,219   

Colorado Health Facilities Authority Revenue (Catholic Health Initiatives) Series C-1 5.10% 10/1/41-18 (AGM)§

     1,000,000         1,088,550   
 

 

(continues)   7


Table of Contents

Schedules of investments

Delaware Investments® Colorado Municipal Income Fund, Inc.

    

 

     Principal
Amount°
    

Value

(U.S. $)

 

 

 

Municipal Bonds (continued)

  

  

 

 

Pre-Refunded/Escrowed to Maturity Bonds (continued)

  

Colorado Health Facilities Authority Revenue (Total Long-Term Care) Series A 6.00% 11/15/30-20§

     400,000       $ 484,320   

Colorado State Board of Governors Series A 5.00% 3/1/39-19§

     690,000         769,529   

University of Colorado Series A 5.375% 6/1/38-19§

 

    

 

750,000

 

  

 

    

 

854,753

 

  

 

     

 

 

 
     

 

 

 

    4,349,893

 

  

     

 

 

 

Special Tax Revenue Bonds – 24.99%

  

Central Platte Valley Metropolitan District 5.00% 12/1/43

     375,000         395,400   

Commerce City 5.00% 8/1/44 (AGM)

     1,000,000         1,140,920   

Denver Convention Center Hotel Authority Revenue 5.00% 12/1/35 (SGI)

     2,875,000         2,911,771   

Fountain Urban Renewal Authority Tax Increment Revenue (Academy Highlands Project) Series A 5.50% 11/1/44

     1,405,000         1,511,218   

Guam Government Business Privilege Tax Revenue Series A 5.125% 1/1/42

     435,000         479,118   

Series A 5.25% 1/1/36

     565,000         631,337   

Regional Transportation District Revenue Series A 5.375% 6/1/31

     460,000         527,395   

(Denver Transit Partners) 6.00% 1/15/41

     2,175,000         2,522,065   

(FasTracks Project) Series A 4.50% 11/1/36 (AGM)

     1,500,000         1,567,845   

Series A 5.00% 11/1/38

     4,085,000         4,664,253   

Sterling Ranch Community Authority Board Series A 5.75% 12/1/45

     525,000         530,166   

Tallyns Reach Metropolitan District No. 3 (Limited Tax Convertible) 5.125% 11/1/38

     295,000         315,644   
     Principal
Amount°
    

Value

(U.S. $)

 

 

 

Municipal Bonds (continued)

  

 

 

Special Tax Revenue Bonds (continued)

  

Thornton Development Authority East 144th Avenue & I-25 Project Series B 4.00% 12/1/37

     350,000       $ 364,140   

Series B 5.00% 12/1/35

     265,000         304,085   

Series B 5.00% 12/1/36

     440,000         503,092   

Virgin Islands Public Finance Authority (Matching Fund Senior Lien) 5.00% 10/1/29 (AGM)

 

    

 

500,000

 

  

 

    

 

568,400

 

  

 

     

 

 

 
     

 

 

 

    18,936,849

 

  

     

 

 

 

Transportation Revenue Bonds – 7.85%

  

Colorado High Performance Transportation Enterprise Revenue (Senior U.S. 36 & I-25 Managed Lanes) 5.75% 1/1/44 (AMT)

     1,110,000         1,201,997   

Denver City & County Airport System Revenue Series A 5.25% 11/15/36

     750,000         855,127   

Series B 5.00% 11/15/28

     1,000,000         1,200,380   

Series B 5.00% 11/15/37

     2,000,000         2,338,080   

E-470 Public Highway Authority Series C 5.25% 9/1/25

 

    

 

310,000

 

  

 

    

 

350,232

 

  

 

     

 

 

 
     

 

 

 

5,945,816

 

  

     

 

 

 

Water & Sewer Revenue Bond – 2.77%

  

Aurora Water Revenue First Lien Series A 5.00% 8/1/36 (AMBAC)

 

    

 

2,000,000

 

  

 

    

 

2,098,500

 

  

 

     

 

 

 
     

 

 

 

2,098,500

 

  

     

 

 

 

Total Municipal Bonds
(cost $96,213,300)

        105,330,545   
     

 

 

 

Total Value of Securities – 139.01%
(cost $96,213,300)

      $ 105,330,545   
     

 

 

 
 

 

8


Table of Contents

    

 

    

    

 

 

  #

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At March 31, 2016, the aggregate value of Rule 144A securities was $3,051,519, which represents 4.03% of the Fund’s net assets. See Note 7 in “Notes to financial statements.”

  °

Principal amount shown is stated in U.S. dollars unless noted that the security is denominated in another currency.

  §

Pre-refunded bonds. Municipal bonds that are generally backed or secured by U.S. Treasury bonds. For pre-refunded bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 7 in “Notes to financial statements.”

Summary of abbreviations:

AGC – Insured by Assured Guaranty Corporation

AGM – Insured by Assured Guaranty Municipal Corporation

AMBAC – Insured by AMBAC Assurance Corporation

AMT – Subject to Alternative Minimum Tax

SGI – Insured by Syncora Guarantee Inc.

See accompanying notes, which are an integral part of the financial statements.

    

 

 

9


Table of Contents

Schedules of investments

 

Delaware Investments® Minnesota Municipal Income Fund II, Inc.

March 31, 2016

 

     Principal
Amount°
    

Value

(U.S. $)

 

 

 

Municipal Bonds – 141.35%

  

 

 

Corporate-Backed Revenue Bonds – 5.94%

  

Cloquet Pollution Control Revenue (Potlatch Project) 5.90% 10/1/26

     5,500,000       $ 5,506,710   

Laurentian Energy Authority I Cogeneration Revenue Series A 5.00% 12/1/21

     3,325,000         3,325,233   

St. Paul Port Authority Revenue (Gerdau St. Paul Steel Mill Project) Series 7 4.50% 10/1/37 (AMT)

     1,715,000         1,458,573   
     

 

 

 
     

 

 

 

    10,290,516

 

  

     

 

 

 

Education Revenue Bonds – 19.56%

  

  

Baytown Township Lease Revenue (St. Croix Preparatory Academy) 5.75% 8/1/42

     300,000         306,939   

Brooklyn Park Charter School Lease (Prairie Seeds Academy Project) Series A 5.00% 3/1/34

     990,000         1,018,661   

Series A 5.00% 3/1/39

     170,000         172,436   

Cologne Charter School Lease Revenue (Cologne Academy Project) Series A 5.00% 7/1/29

     270,000         288,314   

Series A 5.00% 7/1/45

     445,000         459,520   

Deephaven Charter School (Eagle Ridge Academy Project) Series A 5.25% 7/1/37

     740,000         785,591   

Series A 5.25% 7/1/40

     500,000         529,635   

Forest Lake Minnesota Charter School Revenue (Lake International Language Academy) 5.75% 8/1/44

     705,000         783,974   

Hugo Charter School Lease Revenue (Noble Academy Project) Series A 5.00% 7/1/34

     255,000         264,137   

Series A 5.00% 7/1/44

     775,000         788,322   

Minneapolis Student Housing Revenue (Riverton Community Housing Project) 5.25% 8/1/39

     205,000         212,116   
     Principal
Amount°
    

Value

(U.S. $)

 

 

 

Municipal Bonds (continued)

  

 

 

Education Revenue Bonds (continued)

  

  

Minneapolis Student Housing Revenue 5.50% 8/1/49

     990,000       $     1,029,838   

Minnesota Higher Education Facilities Authority Revenue (Carleton College) Series 6-T 5.00% 1/1/28

     1,000,000         1,065,230   

Series D 5.00% 3/1/30

     1,120,000         1,236,301   

(College of St. Benedict) Series 7-M 5.00% 3/1/31

     300,000         328,047   

Series 7-M 5.125% 3/1/36

     275,000         299,621   

(St. Catherine University) Series 7-Q 5.00% 10/1/32

     700,000         787,395   

(St. Johns University) Series 8-I 5.00% 10/1/31

     235,000         282,207   

Series 8-I 5.00% 10/1/34

     35,000         41,416   

(St. Scholastic College) Series H 5.25% 12/1/35

     1,000,000         1,075,730   

(University of St. Thomas) Series 7-A 5.00% 10/1/39

     1,000,000         1,110,410   

Series 7-U 5.00% 4/1/22

     750,000         901,177   

Otsego Charter School (Kaleidoscope Charter School) Series A 5.00% 9/1/34

     335,000         352,611   

Series A 5.00% 9/1/44

     700,000         723,282   

Rice County Educational Facilities Revenue (Shattuck-St. Mary’s School) Series A 144A 5.00% 8/1/22 #

     1,250,000         1,348,987   

St. Paul Housing & Redevelopment Authority Charter School Lease Revenue (Academia Cesar Chavez School Project) Series A 5.25% 7/1/50

     880,000         848,786   

(Nova Classical Academy) Series A 6.375% 9/1/31

     750,000         857,663   

(Twin Cities Academy Project) Series A 5.30% 7/1/45

     630,000         645,309   

University of Minnesota Series A 5.25% 12/1/28

     500,000         593,500   

Series A 5.25% 4/1/29

     1,000,000         1,120,810   
 

 

10


Table of Contents

    

 

    

    

 

     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Education Revenue Bonds (continued)

  

University of Minnesota Series C 5.00% 12/1/19

     1,290,000       $ 1,456,900   

Series D 5.00% 12/1/27

     1,110,000         1,320,389   

Series D 5.00% 12/1/28

     1,880,000         2,232,763   

Series D 5.00% 12/1/29

     2,265,000         2,677,071   

Series D 5.00% 12/1/31

     1,000,000         1,172,510   

Series D 5.00% 12/1/36

     3,000,000         3,491,160   

State Supported Stadium Debt Series A 5.00% 8/1/26

     1,000,000         1,260,390   
     

 

 

 
     

 

 

 

33,869,148

 

  

     

 

 

 

Electric Revenue Bonds – 10.12%

  

Central Minnesota Municipal Power Agency Revenue (Brookings Southeast Twin Cities Transportation) 5.00% 1/1/32

     1,130,000         1,275,216   

(Brookings Twin Cities Transmission Project) 5.00% 1/1/42

     1,000,000         1,107,090   

Chaska Electric Revenue Series A 5.00% 10/1/28

     445,000         545,944   

Minnesota Municipal Power Agency Electric Revenue 5.00% 10/1/25

     500,000         617,705   

5.00% 10/1/26

     500,000         611,685   

5.00% 10/1/27

     320,000         389,117   

Northern Municipal Power Agency Series A 5.00% 1/1/26

     100,000         118,574   

Series A 5.00% 1/1/30

     340,000         394,084   

Rochester Electric Utility Revenue Series B 5.00% 12/1/30

     1,300,000         1,549,405   

Series B 5.00% 12/1/43

     1,000,000         1,150,810   

Western Minnesota Municipal Power Agency Supply Revenue Series A 5.00% 1/1/25

     3,000,000         3,637,260   

Series A 5.00% 1/1/26

     1,000,000         1,205,330   

Series A 5.00% 1/1/33

     1,000,000         1,177,420   

Series A 5.00% 1/1/40

     750,000         864,203   

Series A 5.00% 1/1/46

     2,500,000         2,867,550   
     

 

 

 
     

 

 

 

17,511,393

 

  

     

 

 

 
     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Healthcare Revenue Bonds – 33.52%

  

Anoka Health Care Facilities Revenue 5.375% 11/1/34

     610,000       $ 647,741   

(Homestead Anoka Project) Series A 7.00% 11/1/46

     1,200,000         1,288,032   

Center City Health Care Facilities Revenue (Hazelden Betty Ford Foundation Project) 5.00% 11/1/27

     500,000         598,285   

5.00% 11/1/29

     300,000         355,953   

(Hazelden Foundation Project) 4.75% 11/1/31

     850,000         897,345   

5.00% 11/1/41

     1,600,000         1,705,952   

Cloquet Housing Facilities Revenue (HADC Cloquet Project) Series A 5.00% 8/1/48

     500,000         501,900   

Deephaven Housing & Healthcare Revenue (St. Therese Senior Living Project) Series A 5.00% 4/1/38

     280,000         287,988   

Series A 5.00% 4/1/40

     270,000         277,376   

Duluth Economic Development Authority (St. Luke’s Hospital Authority Obligation Group) 5.75% 6/15/32

     1,400,000         1,557,332   

6.00% 6/15/39

     1,000,000         1,116,440   

Fergus Falls Health Care Facilities Revenue (Lake Region Healthcare) 5.00% 8/1/30

     1,000,000         1,018,540   

Hayward (American Baptist Homes Midwest) 5.75% 2/1/44

     500,000         526,830   

Hayward Health Care Facilities Revenue (St. John’s Lutheran Home of Albert Lea) 5.375% 10/1/44

     680,000         697,129   

Maple Grove Health Care Facilities Revenue (North Memorial Health Care) 5.00% 9/1/30

     865,000         1,011,791   
 

 

(continues)   11


Table of Contents

Schedules of investments

Delaware Investments® Minnesota Municipal Income Fund II, Inc.

    

 

     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Healthcare Revenue Bonds (continued)

  

Maple Grove Health Care System Revenue (Maple Grove Hospital) 5.25% 5/1/37

     1,100,000       $ 1,137,147   

Minneapolis Health Care System Revenue (Fairview Health Services) Series A 5.00% 11/15/33

     500,000         584,165   

Series A 5.00% 11/15/34

     500,000         580,530   

(Unrefunded - Fairview Health Services) Series B 6.50% 11/15/38 (AGC)

     1,940,000           2,185,662   

Minneapolis Senior Housing & Healthcare Revenue (Ecumen Mill City Quarter) 5.00% 11/1/35

     220,000         224,459   

5.25% 11/1/45

     850,000         871,420   

5.375% 11/1/50

     200,000         204,000   

Minneapolis – St. Paul Housing & Redevelopment Authority Health Care Revenue (Children’s Health Care Facilities) Series A1 5.00% 8/15/34 (AGM)

     500,000         561,595   

Rochester Health Care & Housing Revenue

     

(Samaritan Bethany) Series A 7.375% 12/1/41

     1,220,000         1,354,420   

(The Homestead at Rochester Project) Series A 6.875% 12/1/48

     1,220,000         1,386,554   

Rochester Health Care Facilities Revenue (Mayo Clinic) 4.00% 11/15/41

     4,860,000         5,110,387   

Series C 4.50% 11/15/38 

     1,725,000         2,007,296   

Sartell Health Care Facilities Revenue (Country Manor Campus Project) 5.25% 9/1/30

     1,000,000         1,064,560   

Series A 5.30% 9/1/37

     600,000         636,096   
     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Healthcare Revenue Bonds (continued)

  

Shakopee Health Care Facilities Revenue (St. Francis Regional Medical Center) 4.00% 9/1/31

     205,000       $ 218,965   

5.00% 9/1/34

     165,000         189,182   

St. Cloud Health Care Revenue (Centracare Health System Project) 5.50% 5/1/39 (AGC)

     1,500,000         1,653,600   

Series A 5.125% 5/1/30

     5,175,000         5,852,666   

Series B 5.00% 5/1/24

     1,400,000         1,717,702   

St. Paul Housing & Redevelopment Authority Health Care Facilities Revenue

     

(Allina Health System) Series A-1 5.25% 11/15/29

     1,395,000         1,572,500   

(Health Partners Obligation Group Project) 5.00% 7/1/29

     2,000,000           2,391,400   

5.00% 7/1/32

     1,100,000         1,295,470   

St. Paul Housing & Redevelopment Authority Hospital Facility (Healtheast Care System Project) Series A 5.00% 11/15/29

     395,000         467,297   

Series A 5.00% 11/15/30

     290,000         341,205   

St. Paul Housing & Redevelopment Authority Housing & Health Care Facilities Revenue (Senior Carondelet Village Project) Series A 6.00% 8/1/42

     770,000         794,109   

(Senior Episcopal Homes Project) 5.125% 5/1/48

     1,200,000         1,253,280   

Series A 4.75% 11/1/31

     740,000         759,270   

Washington County Housing & Redevelopment Authority Revenue (Birchwood & Woodbury Projects) Series A 5.625% 6/1/37

     1,500,000         1,555,800   
 

 

12


Table of Contents

    

 

    

    

 

     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Healthcare Revenue Bonds (continued)

  

Wayzata Senior Housing Revenue (Folkestone Senior Living Community) Series A 5.50% 11/1/32

     420,000       $ 454,978   

Series A 5.75% 11/1/39

     945,000         1,018,814   

Series A 6.00% 5/1/47

     1,475,000         1,598,694   

Winona Health Care Facilities Revenue (Winona Health Obligation) 4.65% 7/1/26

     465,000         501,061   

4.75% 7/1/27

     785,000         844,919   

5.00% 7/1/23

     1,010,000         1,045,916   

5.00% 7/1/34

     750,000         811,523   

Woodbury Housing & Redevelopment Authority Revenue (St. Therese of Woodbury) 5.125% 12/1/44

     1,250,000         1,298,888   
     

 

 

 
     

 

 

 

  58,034,164

 

  

     

 

 

 

Housing Revenue Bonds – 3.26%

  

Minneapolis Multifamily Housing Revenue (Olson Townhomes Project) 6.00% 12/1/19 (AMT)

     410,000         410,303   

Minnesota Housing Finance Agency (Non Ace - State Appropriated Housing) 5.00% 8/1/33

     1,390,000         1,631,624   

Minnesota State Housing Finance Agency (Residential Housing) Series D 4.75% 7/1/32 (AMT) 

     695,000         697,196   

Series L 5.10% 7/1/38 (AMT)

     1,060,000         1,075,306   

Minnesota State Housing Finance Agency Homeownership (Mortgage-Backed Securities Program) 4.40% 7/1/32 (GNMA) (FNMA)

     1,160,000         1,253,658   
     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Housing Revenue Bonds (continued)

  

Northwest Multi-County Housing & Redevelopment Authority (Pooled Housing Program) 5.50% 7/1/45

     560,000       $ 567,627   
     

 

 

 
     

 

 

 

5,635,714

 

  

     

 

 

 

Lease Revenue Bonds – 15.01%

  

Minnesota State General Fund Revenue Appropriations Series A 5.00% 6/1/32

     780,000         921,219   

Series A 5.00% 6/1/38

     5,500,000         6,334,515   

Series A 5.00% 6/1/43

     1,750,000         2,003,243   

Series B 4.00% 3/1/26

     3,000,000         3,329,130   

Series B 5.00% 3/1/21

     1,500,000         1,767,975   

Series B 5.00% 3/1/29

     3,525,000         4,187,312   

University of Minnesota Special Purpose Revenue (State Supported Biomed Science Research) 5.00% 8/1/35

     1,040,000         1,176,365   

5.00% 8/1/36

     4,000,000         4,622,720   

Virginia Housing & Redevelopment Authority Health Care Facility Lease Revenue 5.25% 10/1/25

     680,000         681,523   

5.375% 10/1/30

     965,000         966,940   
     

 

 

 
     

 

 

 

  25,990,942

 

  

     

 

 

 

Local General Obligation Bonds – 8.11%

  

Burnsville-Eagan-Savage Independent School District No 191 (Alternative Facilities) Series A 4.00% 2/1/28

     1,185,000         1,360,309   

Duluth, Minnesota (Improvement DECC) Series A 5.00% 2/1/34

     545,000         664,175   

Hopkins Independent School District No. 270 Series A 5.00% 2/1/28

     1,000,000         1,163,500   

Mahtomedi Independent School District No. 832 (School Building) Series A 5.00% 2/1/28

     515,000         637,086   
 

 

(continues)   13


Table of Contents

Schedules of investments

Delaware Investments® Minnesota Municipal Income Fund II, Inc.

    

 

     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Local General Obligation Bonds (continued)

  

Rocori Independent School District No. 750 (School Building) Series B 5.00% 2/1/22

     1,010,000       $ 1,119,646   

Series B 5.00% 2/1/24

     1,075,000         1,190,745   

Series B 5.00% 2/1/25

     1,115,000         1,233,725   

Series B 5.00% 2/1/26

     1,155,000         1,277,984   

St. Paul Independent School District No. 625 (School Building) Series B 5.00% 2/1/22

     1,300,000         1,571,232   

Series B 5.00% 2/1/26

     1,000,000         1,209,380   

Willmar (Rice Memorial Hospital Project) Series A 4.00% 2/1/32

     2,440,000         2,610,190   
     

 

 

 
     

 

 

 

  14,037,972

 

  

     

 

 

 

Pre-Refunded/Escrowed to Maturity Bonds – 18.48%

  

Dakota-Washington Counties Housing & Redevelopment Authority Single Family Residential Mortgage Revenue (City of Bloomington) Series B 8.375% 9/1/21 (GNMA) (AMT)

     7,055,000         9,485,236   

Deephaven Charter School (Eagle Ridge Academy Project) Series A 5.50% 7/1/43-23 §

     500,000         623,670   

Minneapolis Health Care System Revenue (Fairview Health Services) Series A 6.375% 11/15/23-18 §

     455,000         520,147   

Series A 6.625% 11/15/28-18 §

     1,150,000         1,322,086   

Series B 6.50% 11/15/38-18 (AGC) §

     355,000         406,976   

Minneapolis Revenue (National Marrow Donor Program Project) Series NMDP 4.875% 8/1/25-18 §

     1,000,000         1,092,940   

Minnesota Higher Education Facilities Authority Revenue (University of St. Thomas) Series 6-X 5.00% 4/1/29-17 §

     2,250,000         2,348,573   
     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Pre-Refunded/Escrowed to Maturity Bonds (continued)

  

Southern Minnesota Municipal Power Agency Revenue Series A 5.75% 1/1/18

     1,450,000       $ 1,483,452   

Southern Minnesota Municipal Power Agency Supply Revenue Series A 5.25% 1/1/30-19 §

     1,030,000         1,151,272   

St. Louis Park Health Care Facilities Revenue (Park Nicollet Health Services) 5.75% 7/1/39-19 §

  

 

3,565,000

  

  

 

4,114,402

  

Series C 5.50% 7/1/23-18 §

     1,000,000         1,104,460   

St. Paul Housing & Redevelopment Authority Health Care Facilities Revenue (Health Partners Obligation Group Project) 5.25% 5/15/36-16 §

     2,000,000         2,058,580   

University of Minnesota Series A 5.50% 7/1/21

     4,000,000         4,715,960   

Series A 5.75% 7/1/18

     500,000         555,250   

University of Minnesota Hospital & Clinics 6.75% 12/1/16

     970,000         1,009,974   
     

 

 

 
     

 

 

 

  31,992,978

 

  

     

 

 

 

Special Tax Revenue Bonds – 5.53%

  

Guam Government Business Privilege Tax Revenue Series A 5.25% 1/1/36

     150,000         167,611   

Hennepin County Sales Tax Revenue (Second Lien-Ballpark Project) Series B 4.75% 12/15/27

     1,905,000         2,024,691   

Minneapolis Community Planning & Economic Development Department (Limited Tax Supported Common Bond Fund) 6.25% 12/1/30

     1,000,000         1,195,280   

Series 1 5.50% 12/1/24 (AMT)

     920,000         927,185   

Minnesota Public Safety Radio 5.00% 6/1/23

     2,845,000         3,220,028   
 

 

14


Table of Contents

    

 

    

    

 

     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Special Tax Revenue Bonds (continued)

  

St. Paul Port Authority (Brownfields Redevelopment Tax) Series 2 5.00% 3/1/37

     895,000       $ 925,448   

St. Paul Sales Tax Revenue Series G 5.00% 11/1/30

     935,000         1,113,089   
     

 

 

 
     

 

 

 

9,573,332

 

  

     

 

 

 

State General Obligation Bonds – 15.30%

  

Minnesota State Series A 5.00% 8/1/24

     4,500,000         5,721,300   

Series A 5.00% 8/1/29

     700,000         878,423   

(State Trunk Highway) Series B 5.00% 10/1/22

     5,500,000         6,626,235   

Series B 5.00% 10/1/29

     3,315,000         3,960,132   

(State Various Purpose) Series D 5.00% 8/1/24

     2,700,000         3,146,958   

(Various Purposes) Series F 5.00% 10/1/22

     5,000,000         6,160,050   
     

 

 

 
     

 

 

 

26,493,098

 

  

     

 

 

 

Transportation Revenue Bonds – 4.46%

  

Minneapolis – St. Paul Metropolitan Airports Commission Revenue 5.00% 1/1/21

     2,600,000         3,054,792   

5.00% 1/1/22

     670,000         781,126   

Subordinate Series B 5.00% 1/1/26

     540,000         633,328   

Series B 5.00% 1/1/26 (AMT)

     500,000         588,710   

Series B 5.00% 1/1/27

     1,190,000         1,385,779   

Series B 5.00% 1/1/30

     500,000         573,465   

Series B 5.00% 1/1/31

     250,000         286,297   

St. Paul Port Authority Revenue (Amherst H. Wilder Foundation) Series 3 5.00% 12/1/36

     380,000         408,223   
     

 

 

 
     

 

 

 

7,711,720

 

  

     

 

 

 

Water & Sewer Revenue Bonds – 2.06%

  

Guam Government Waterworks Authority 5.00% 1/1/46

     725,000         823,977   
     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Water & Sewer Revenue Bonds (continued)

  

Metropolitan Council Waste Water Revenue Series B 4.00% 9/1/27

     1,145,000       $ 1,291,800   

St. Paul Sewer Revenue Series D 5.00% 12/1/21

     1,325,000         1,441,786   
     

 

 

 
        3,557,563   
     

 

 

 

Total Municipal Bonds
(cost $229,270,463)

        244,698,540   
     

 

 

 

Total Value of Securities – 141.35%
(cost $229,270,463)

      $ 244,698,540   
     

 

 

 

 

  #

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At March 31, 2016, the aggregate value of Rule 144A securities was $1,348,987, which represents 0.78% of the Fund’s net assets. See Note 7 in “Notes to financial statements.”

  °

Principal amount shown is stated in U.S. dollars unless noted that the security is denominated in another currency.

 

Variable rate security. The rate shown is the rate as of March 31, 2016. Interest rates reset periodically.

  §

Pre-refunded bonds. Municipal bonds that are generally backed or secured by U.S. Treasury bonds. For pre-refunded bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 7 in “Notes to financial statements.”

Summary of abbreviations:

AGC – Insured by Assured Guaranty Corporation

AGM – Insured by Assured Guaranty Municipal Corporation

AMT – Subject to Alternative Minimum Tax

FNMA – Federal National Mortgage Association Collateral

GNMA – Government National Mortgage Association Collateral

See accompanying notes, which are an integral part of the financial statements.

 

 

15


Table of Contents

Schedules of investments

 

Delaware Investments® National Municipal Income Fund

March 31, 2016

 

     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds – 140.67%

  

 

 

Corporate-Backed Revenue Bonds – 12.75%

  

Buckeye, Ohio Tobacco Settlement Financing Authority Asset-Backed -2 Series A-2 5.875% 6/1/47

     500,000       $ 473,245   

Series A-2 6.50% 6/1/47

     430,000         430,047   

Gaston County, North Carolina Industrial Facilities & Pollution Control Financing Authority (Exempt Facilities-National Gypsum Project) 5.75% 8/1/35 (AMT)

     290,000         290,560   

Golden State, California Tobacco Securitization Corporate Settlement Revenue (Asset-Backed Senior Notes) Series A-1 5.75% 6/1/47

     830,000         829,925   

Harris County, Texas Industrial Development Corporation Solid Waste Disposal Revenue (Deer Park Refining Project) 5.00% 2/1/23

     150,000         165,493   

Illinois Railsplitter Tobacco Settlement Authority 6.25% 6/1/24

     500,000         504,820   

Louisiana Local Government Environmental Facilities & Community Development Authority (Westlake Chemical) Series A 6.50% 8/1/29

     645,000         749,071   

Series A-1 6.50% 11/1/35

     255,000         298,919   

Louisiana Public Facilities Authority (LA Pellets Inc. Project) 144A 7.75% 7/1/39 (AMT)#@‡

     240,000         139,723   

Lower Alabama Gas District Series A 5.00% 9/1/46

     820,000         1,018,834   

M-S-R Energy Authority, California Gas Series C 7.00% 11/1/34

     1,000,000         1,484,010   
     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Corporate-Backed Revenue Bonds (continued)

  

Ohio State Air Quality Development Authority Revenue (First Energy Generation) Series A 5.70% 8/1/20

     260,000       $ 291,686   

Shoals, Indiana (National Gypsum Project) 7.25% 11/1/43 (AMT)

     310,000         348,871   

Suffolk County, New York Tobacco Asset Securitization Series B 5.00% 6/1/32

     750,000         833,400   

Tobacco Settlement Financing Corporation, Louisiana Asset-Backed Note Series A 5.25% 5/15/35

     460,000         518,429   

Valparaiso, Indiana (Pratt Paper Project) 7.00% 1/1/44 (AMT)

     240,000         296,203   
     

 

 

 
     

 

 

 

8,673,236

 

  

     

 

 

 

Education Revenue Bonds – 21.41%

  

Bowling Green, Ohio Student Housing Revenue CFP I (CFP I State University Project) 6.00% 6/1/45

     260,000         281,247   

East Hempfield Township, Pennsylvania Industrial Development Authority (Student Services Income - Student Housing Project) 5.00% 7/1/35

     1,000,000         1,077,880   

Health & Educational Facilities Authority of the State of Missouri (St. Louis College of Pharmacy Project) 5.25% 5/1/33

     500,000         560,120   

(Washington University) Series B 5.00% 11/15/30

     600,000         704,586   

Marietta, Georgia Development Authority Revenue (Life University Income Project) 7.00% 6/15/39

     430,000         447,127   

Maryland Health & Higher Educational Facilities Authority (Loyola University) Series A 5.00% 10/1/39

     650,000         732,387   
 

 

16


Table of Contents

    

 

    

    

 

     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Education Revenue Bonds (continued)

  

Massachusetts State Health & Educational Facilities Authority Revenue (Harvard University) Series A 5.00% 12/15/29

     600,000       $ 691,440   

Monroe County, New York Industrial Development Revenue (Nazareth College Rochester Project) 5.50% 10/1/41

     495,000         554,118   

Montgomery County, Pennsylvania Higher Education & Health Authority Revenue (Arcadia University) 5.25% 4/1/30

     550,000         591,806   

New Hope Cultural Education Facilities, Texas (Chief-Collegiate Housing-Tarleton St.) 5.00% 4/1/34

     1,000,000         1,081,110   

New Jersey Economic Development Authority Revenue (MSU Student Housing Project) 5.875% 6/1/42

     450,000         502,259   

New York City, New York Trust For Cultural Resources (Whitney Museum of American Art) 5.00% 7/1/31

     500,000         572,270   

New York State Dormitory Authority (Columbia University) 5.00% 10/1/41

     600,000         693,750   

Oregon State Facilities Authority Revenue (Concordia University Project) Series A 144A 6.125% 9/1/30 #

     135,000         144,551   

Pennsylvania State Higher Educational Facilities Authority Revenue (Edinboro University Foundation) 5.80% 7/1/30

     400,000         431,160   

(University Properties - East Stroudsburg University) 5.25% 7/1/19

     510,000         551,376   
     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Education Revenue Bonds (continued)

  

Philadelphia Authority for Industrial Development (1st Philadelphia Preparatory College) 7.25% 6/15/43

     370,000       $ 439,974   

Phoenix, Arizona Industrial Development Authority Revenue (Rowan University Project) 5.00% 6/1/42

     1,000,000         1,108,820   

Pima County, Arizona Industrial Development Authority Education Revenue (Edkey Charter School Project) 6.00% 7/1/48

     500,000         497,870   

Private Colleges & Universities Authority Revenue, Georgia (Mercer University) Series A 5.00% 10/1/32

     135,000         152,021   

Swarthmore Borough Authority, Pennsylvania (Swarthmore College Project) 5.00% 9/15/32

     490,000         595,507   

Troy, New York Capital Resource Revenue (Rensselaer Polytechnic) Series A 5.125% 9/1/40

     600,000         675,348   

University of California Series AI 5.00% 5/15/32

     1,000,000         1,193,080   

Wyoming Community Development Authority Student Housing Revenue (CHF-Wyoming LLC) 6.50% 7/1/43

     250,000         283,925   
     

 

 

 
     

 

 

 

14,563,732

 

  

     

 

 

 

Electric Revenue Bonds – 4.04%

  

Imperial Irrigation District Electric System Revenue, California Series C 5.00% 11/1/28

     60,000         75,664   

Series C 5.00% 11/1/38

     1,000,000         1,201,820   

JEA Electric System Revenue, Florida Series A 5.00% 10/1/33

     1,000,000         1,182,000   

Long Island Power Authority, New York Series A 5.00% 9/1/44

     250,000         286,740   
     

 

 

 
     

 

 

 

2,746,224

 

  

     

 

 

 
 

 

(continues)   17


Table of Contents

Schedules of investments

Delaware Investments® National Municipal Income Fund

    

 

     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Healthcare Revenue Bonds – 20.64%

  

Alabama Special Care Facilities Financing Authority-Birmingham Alabama (Methodist Home for the Aging) 6.00% 6/1/50

     500,000       $ 515,690   

Arizona Health Facilities Authority Revenue (Catholic Healthcare West) Series D 5.00% 7/1/28

     500,000         548,285   

Capital Trust Agency, Florida (Tuscan Gardens Senior Living Center) Series A 7.00% 4/1/49

     375,000         389,696   

Colorado Health Facilities Authority Revenue (Healthcare Facilities - American Baptist) 8.00% 8/1/43

     330,000         397,046   

Hawaii Pacific Health Special Purpose Revenue Series A 5.50% 7/1/40

     300,000         335,100   

Housing & Redevelopment Authority of The City of St. Paul Minnesota (Healthpartners Obligation Group) 5.00% 7/1/29

     1,000,000         1,195,700   

Koyukuk, Alaska Revenue (Tanana Chiefs Conference Health Care Facility Project) 7.75% 10/1/41

     300,000         342,051   

Louisiana Public Facilities Authority Revenue (Ochsner Clinic Foundation Project) 6.50% 5/15/37

     105,000         125,854   

Lycoming County, Pennsylvania Authority Health System Revenue (Susquehanna Health System Project) Series A 5.50% 7/1/28

     500,000         561,335   

Maine Health & Higher Educational Facilities Authority Revenue (Maine General Medical Center) 6.75% 7/1/41

     300,000         341,433   
     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Healthcare Revenue Bonds (continued)

  

Maricopa County, Arizona Industrial Development Authority Health Facilities Revenue (Catholic Healthcare West) Series A 6.00% 7/1/39

     500,000       $ 563,455   

Michigan Finance Authority Revenue (Beaumont Health Credit Group) 5.00% 11/1/44

     1,000,000         1,138,230   

Monroe County, Pennsylvania Hospital Authority Revenue (Pocono Medical Center) Series A 5.00% 1/1/41

     500,000         543,205   

Moon, Pennsylvania Industrial Development Authority (Baptist Homes Society Obligation) 6.125% 7/1/50

     750,000         767,558   

New Hampshire Health and Education Facilities Authority Revenue (Dartmouth - Hitchcock Medical Center) 6.00% 8/1/38

     300,000         343,779   

New Jersey Health Care Facilities Financing Authority Revenue (St. Peters University Hospital) 6.25% 7/1/35

     300,000         325,887   

New Mexico Hospital Equipment Loan Council Revenue (Presbyterian Healthcare) 5.00% 8/1/39

     500,000         547,445   

New York State Dormitory Authority Revenue Non State Supported Debt (Orange Regional Medical Center) 6.25% 12/1/37

     500,000         548,330   

Ohio State (Cleveland Clinic Health) Series A 5.50% 1/1/39

     300,000         336,786   

Orange County, Florida Health Facilities Authority Revenue (Mayflower Retirement Center) 5.00% 6/1/32

     400,000         432,732   

5.00% 6/1/36

     250,000         269,225   

5.125% 6/1/42

     750,000         810,608   
 

 

18


Table of Contents

    

 

    

    

 

     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Healthcare Revenue Bonds (continued)

  

Oregon State Facilities Authority Revenue (Peacehealth Project) Series A 5.00% 11/15/29

     500,000       $ 591,155   

Palm Beach County Health Facilities Authority, Florida (Sinai Residences Boca Raton Project) 7.25% 6/1/34

     20,000         24,119   

7.50% 6/1/49

     105,000         128,815   

West Virginia Hospital Finance Authority Revenue (Highland Hospital Obligation Group) 9.125% 10/1/41 @

     500,000         544,350   

Westminster, Maryland (Lutheran Village Millers Grant Inc.) 6.00% 7/1/34

     500,000         554,445   

Yavapai County, Arizona Industrial Development Authority Revenue (Yavapai Regional Medical Center) Series A 5.00% 8/1/28

     720,000         811,058   
     

 

 

 
     

 

 

 

14,033,372

 

  

     

 

 

 

Housing Revenue Bond – 0.68%

  

California Municipal Finance Authority Mobile Home Park Revenue (Caritas Project) Series A 6.40% 8/15/45

     420,000         465,011   
     

 

 

 
     

 

 

 

465,011

 

  

     

 

 

 

Lease Revenue Bonds – 9.19%

  

California State Public Works Board Lease Revenue (Various Capital Projects) Series A 5.00% 4/1/37

     1,000,000         1,151,720   

Idaho State Building Authority Revenue (Health & Welfare Project) Series A 5.00% 9/1/24

     135,000         162,423   

(State Police) Series I 5.00% 9/1/23

     760,000         906,460   

Minnesota State General Revenue Appropriations Series B 5.00% 3/1/29

     2,000,000         2,375,780   
     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Lease Revenue Bonds (continued)

  

New Jersey Economic Development Authority Series WW 5.25% 6/15/30

     1,000,000       $   1,112,140   

(School Facilities Construction) 5.00% 9/1/18

     25,000         26,752   

Public Finance Authority, Wisconsin Airport Facilities Revenue (AFCO Investors II Portfolio) 5.75% 10/1/31

     500,000         511,545   
     

 

 

 
     

 

 

 

6,246,820

 

  

     

 

 

 

Local General Obligation Bonds – 2.44%

  

Chicago, Illinois Series A 5.50% 1/1/34

     225,000         226,064   

Series C 5.00% 1/1/38

     965,000         919,433   

New York, New York Series A-1 5.25% 8/15/21

     250,000         276,528   

Series I-1 5.375% 4/1/36

     210,000         236,657   
     

 

 

 
     

 

 

 

1,658,682

 

  

     

 

 

 

Pre-Refunded/Escrowed to Maturity Bonds – 15.28%

  

Atlanta, Georgia Water & Wastewater Revenue Series A 6.25% 11/1/39-19§

     950,000         1,127,878   

Bay Area, California Toll Authority Toll Bridge Revenue (San Francisco Bay Area) Series F1 5.00% 4/1/34-18§

     1,000,000         1,085,250   

Brevard County, Florida Health Facilities Authority Revenue (Health First Project) 7.00% 4/1/39-19§

     350,000         412,653   

Butler County, Pennsylvania Hospital Authority Revenue (Butler Health System Project) 7.125% 7/1/29-19§

     450,000         538,794   

California State Economic Recovery Series A 5.25% 7/1/21-19§

     260,000         297,627   
 

 

(continues)   19


Table of Contents

Schedules of investments

Delaware Investments® National Municipal Income Fund

    

 

     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Pre-Refunded/Escrowed to Maturity Bonds (continued)

  

California Statewide Communities Development Authority Revenue (Statewide Inland Regional Center Project) 5.375% 12/1/37-17§

     500,000       $ 539,065   

California Statewide Communities Development Authority School Facility Revenue (Aspire Public Schools) 6.125% 7/1/46-19§

     625,000         711,750   

California Statewide Communities Development Authority Student Housing Revenue (Irvine, LLC - UCI East Campus) 6.00% 5/15/23-18§

     470,000         522,302   

Gila County, Arizona Unified School District No. 10 (Payson School Improvement Project of 2006) Series A 5.25% 7/1/27-17 (AMBAC)§

     500,000         528,615   

Illinois Finance Authority Revenue (Silver Cross & Medical Centers) 7.00% 8/15/44-19§

     950,000         1,139,857   

Maryland State Economic Development Student Housing Revenue (University of Maryland College Park Projects) 5.75% 6/1/33-18§

     370,000         409,131   

New Jersey Economic Development Authority (School Facilities Construction) 5.00% 9/1/18

     75,000         82,425   

New York City, New York Industrial Development Agency Civic Facility Revenue (YMCA of Greater New York Project) 5.00% 8/1/36-16§

     595,000         603,919   

New York, New York Series I-1 5.375% 4/1/36-19§

     40,000         45,293   
     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

     

 

 

Pre-Refunded/Escrowed to Maturity Bonds (continued)

  

North Texas Tollway Authority (Toll 2nd Tier) Series F 5.75% 1/1/38-18§

     1,100,000       $ 1,195,326   

University Medical Center, Tucson, Arizona Hospital Revenue 6.50% 7/1/39-19§

     500,000         587,800   

University of Arizona Series A 5.00% 6/1/39-19§

     500,000         563,825   
     

 

 

 
     

 

 

 

10,391,510

 

  

     

 

 

 

Special Tax Revenue Bonds – 21.70%

  

Anne Arundel County, Maryland Special Obligation Revenue (National Business Park - North Project) 6.10% 7/1/40

     200,000         211,796   

Brooklyn Arena Local Development, New York Pilot Revenue (Barclays Center Project) 6.25% 7/15/40

     940,000         1,083,068   

6.50% 7/15/30

     300,000         349,671   

Central Puget Sound, Washington Regional Transit Authority (Green Bond - Improvement) Series S-1 5.00% 11/1/35

     750,000         904,627   

Guam Government Business Privilege Tax Revenue Series A 5.00% 1/1/22

     775,000         902,503   

Series B-1 5.00% 1/1/42

     540,000         589,172   

Massachusetts Bay Transportation Authority Senior Series A 5.25% 7/1/29

     200,000         267,052   

Metropolitan Transit Authority of Harris County, Texas Series A 5.00% 11/1/24

     500,000         600,110   

Miami-Dade County, Florida Special Obligation (Capital Appreciation & Income) Series B 5.00% 10/1/35 (NATL-RE)

     1,000,000         1,003,480   

Mosaic District, Virginia Community Development Authority Revenue Series A 6.875% 3/1/36

     520,000         599,659   
 

 

20


Table of Contents

    

 

    

    

 

     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Special Tax Revenue Bonds (continued)

  

New Jersey Economic Development Authority Revenue 5.00% 6/15/28

     200,000       $ 215,134   

5.00% 6/15/29

     800,000         857,240   

(School Facilities Construction) Series AA 5.50% 12/15/29

     900,000         990,819   

New York City, New York Transitional Finance Authority Future Tax Secured Revenue (Future Tax Secured - Subordinated Fiscal) Series E-1 5.00% 2/1/41

     745,000         868,640   

New York State Dormitory Authority Series A 5.00% 3/15/33

     1,000,000         1,175,430   

(State Personal Income Tax Revenue-Education) Series A 5.00% 3/15/38

     570,000         632,426   

Northampton County, Pennsylvania Industrial Development Authority Revenue (Route 33 Project) 7.00% 7/1/32

     230,000         252,956   

Oregon State Department of Transportation Series A 5.00% 11/15/26

     1,000,000         1,251,090   

Peoria, Arizona Municipal Development Authority Sales Tax & Excise Shared Revenue (Senior Lien & Subordinate Lien) 5.00% 1/1/18

     1,085,000         1,162,057   

Regional Transportation District, Colorado Tax Revenue (Denver Transit Partners) 6.00% 1/15/41

     500,000         579,785   

Wyandotte County, Kansas City, Kansas Unified Government Special Obligation Revenue (Capital Appreciation) Sales Tax Subordinate Lien 6.07% 6/1/21 ^

     30,000         22,638   
     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Special Tax Revenue Bonds (continued)

  

Wyandotte County, Kansas City, Kansas Unified Government Special Obligation Revenue (Sales Tax - Vacation Village Project A) Series A 5.75% 9/1/32

     235,000       $ 239,117   
     

 

 

 
     

 

 

 

14,758,470

 

  

     

 

 

 

State General Obligation Bonds – 3.62%

  

California State 5.25% 11/1/40

     320,000         374,349   

(Various Purposes) 5.00% 10/1/41

     440,000         511,663   

5.00% 10/1/44

     440,000         516,406   

6.00% 4/1/38

     105,000         120,512   

New York State Series A 5.00% 2/15/39

     300,000         333,327   

Oregon State Series K 5.00% 5/1/22

     500,000         608,205   
     

 

 

 
     

 

 

 

2,464,462

 

  

     

 

 

 

Transportation Revenue Bonds – 23.40%

  

Atlanta, Georgia Department of Aviation Series B 5.00% 1/1/29

     1,000,000         1,189,060   

Central Texas Regional Mobility Authority Revenue Senior Lien 6.00% 1/1/41

     520,000         616,902   

Chicago, Illinois O’Hare International Airport Revenue (General-Senior Lien) Series D 5.25% 1/1/34

     1,000,000         1,174,540   

Maryland State Economic Development Revenue (Transportation Facilities Project) Series A 5.75% 6/1/35

     255,000         279,248   

Metropolitan Transportation Authority, New York Series A 5.00% 11/15/41

     500,000         580,175   

Metropolitan Washington D.C. Airports Authority Dulles Toll Road Revenue (First Senior Lien) Series A 5.25% 10/1/44

     245,000         272,776   

New Jersey State Turnpike Authority Revenue Series A 5.00% 1/1/27

     1,000,000         1,191,930  
 

 

(continues)   21


Table of Contents

Schedules of investments

Delaware Investments® National Municipal Income Fund

    

 

     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Transportation Revenue Bonds (continued)

  

New Orleans, Louisiana Aviation Board Series B 5.00% 1/1/45 (AMT)

     1,000,000       $   1,109,780   

New York Liberty Development Revenue (1 World Trade Center Port Authority Construction) 5.00% 12/15/41

     500,000         581,660   

North Texas Tollway Authority Special Projects System Series A 5.00% 9/1/20

     250,000         291,095   

Pennsylvania Turnpike Commission Series A-1 5.00% 12/1/43

     500,000         557,210   

(Subordinate) Series A 5.00% 12/1/46

     160,000         179,966   

Pennsylvania Turnpike Commission Subordinate (Special Motor License Foundation) 5.00% 12/1/22

     500,000         579,495   

Series B 5.00% 12/1/41

     500,000         558,085   

Port Authority of Allegheny County, Pennsylvania 5.75% 3/1/29

     900,000         1,076,004   

Port Authority of New York & New Jersey Special Project (JFK International Air Terminal) 6.00% 12/1/42

     230,000         271,138   

6.50% 12/1/28

     500,000         504,970   

St. Louis, Missouri Airport Revenue (Lambert St. Louis International) 5.00% 7/1/32 (AMT)

     1,000,000         1,086,420   

Series A-1 6.625% 7/1/34

     325,000         372,837   

Texas Private Activity Bond Surface Transportation Corporate Senior Lien Revenue (LBJ Infrastructure) 7.00% 6/30/40

     285,000         344,585   

7.50% 6/30/33

     665,000         823,702   

(Mobility Partners) 7.50% 12/31/31

     500,000         605,615   
     Principal      Value  
     Amount°      (U.S. $)  

 

 

Municipal Bonds (continued)

  

 

 

Transportation Revenue Bonds (continued)

  

Texas Private Activity Bond Surface Transportation Corporate Senior Lien Revenue (NTE Mobility Partners) 6.75% 6/30/43 (AMT)

     225,000       $ 278,363   

6.875% 12/31/39

     1,000,000         1,180,210   

7.00% 12/31/38 (AMT)

     165,000         207,714   
     

 

 

 
     

 

 

 

  15,913,480

 

  

     

 

 

 

Water & Sewer Revenue Bonds – 5.52%

  

New York City Water & Sewer System, New York (2nd Generation Fiscal 2013) Series CC 5.00% 6/15/47

     345,000         402,774   

Philadelphia, Pennsylvania Water & Wastewater Revenue Series A 5.00% 7/1/45

     500,000         570,620   

Phoenix, Arizona Civic Improvement Wastewater Systems Revenue (Junior Lien) Series A 5.00% 7/1/39

     900,000         997,434   

San Francisco, California City & County Public Utilities Commission Water Revenue Series F 5.00% 11/1/27

     500,000         587,735   

Southern California Water Replenishment District 5.00% 8/1/41

     1,000,000         1,192,240   
     

 

 

 
     

 

 

 

3,750,803

 

  

     

 

 

 

Total Municipal Bonds
(cost $87,105,400)

        95,665,802   
     

 

 

 
 

 

22


Table of Contents

    

 

    

    

 

    Principal
Amount°
    Value
(U.S. $)
 

 

 

Short-Term Investment – 1.47%

  

 

 

 

Variable Rate Demand Note – 1.47%¤

  

 

Mississippi State Business Finance Commission Gulf Opportunity Zone Series C (Chevron USA Project) 0.32% 12/1/30

    1,000,000      $ 1,000,000   
   

 

 

 

Total Short-Term Investment
(cost $1,000,000)

   

    1,000,000   
   

 

 

 

Total Value of Securities – 142.14%
(cost $88,105,400)

   

      $96,665,802   
   

 

 

 

 

  #

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At March 31, 2016, the aggregate value of Rule 144A securities was $284,274, which represents 0.42% of the Fund’s net assets. See Note 7 in “Notes to financial statements.”

  @

Illiquid security. At March 31, 2016, the aggregate value of illiquid securities was $684,073, which represents 1.01% of the Fund’s net assets. See Note 7 in “Notes to financial statements.”

  ¤

Tax-exempt obligations that contain a floating or variable interest rate adjustment formula and an unconditional right of demand to receive payment of the unpaid principal balance plus accrued interest upon a short notice period (generally up to 30 days) prior to specified dates either from the issuer or by drawing on a bank letter of credit, a guarantee, or insurance issued with respect to such instrument. The rate shown is the rate as of March 31, 2016.

  °

Principal amount shown is stated in U.S. dollars unless noted that the security is denominated in another currency.

 

Non-income-producing security. Security is currently in default.

  ^

Zero coupon security. The rate shown is the yield at the time of purchase.

  §

Pre-refunded bonds. Municipal bonds that are generally backed or secured by U.S. Treasury bonds. For pre-refunded bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 7 in “Notes to financial statements.”

Summary of abbreviations:

AMBAC – Insured by AMBAC Assurance Corporation

AMT – Subject to Alternative Minimum Tax

NATL-RE – Insured by National Public Finance Guarantee Corporation

See accompanying notes, which are an integral part of the financial statements.

    

 

 

23


Table of Contents

Statements of assets and liabilities

Delaware Investments® Closed-End Municipal Bond Funds

March 31, 2016

 

     Delaware
Investments
Colorado
Municipal
Income
Fund, Inc.
    Delaware
Investments
Minnesota
Municipal
Income
Fund II, Inc.
    Delaware
Investments
National
Municipal
Income
Fund
 

Assets:

      

Investments, at value1

   $ 105,330,545      $ 244,698,540      $ 95,665,802   

Short-term investments, at value2

                   1,000,000   

Cash

     22,839        84,407        128,699   

Interest income receivable

     1,471,889        3,309,179        1,330,724   

Receivables for securities sold

            15,165          

Prepaid rating agency fee

     21,750        16,500        8,417   

Offering cost for preferred shareholders

     135,812        174,086        149,413   
  

 

 

   

 

 

   

 

 

 

Total assets

     106,982,835        248,297,877        98,283,055   
  

 

 

   

 

 

   

 

 

 

Liabilities:

      

Liquidation value of preferred stock

     30,000,000        75,000,000        30,000,000   

Payable for securities purchased

     1,113,180               179,133   

Legal fees payable to affiliates

     2,200        3,229        2,116   

Reports and statements to shareholders payable to affiliates

     50        115        45   

Audit and tax fees payable

     40,500        40,500        40,500   

Investment management fees payable

     35,634        83,702        33,023   

Other accrued expenses

     18,932        48,800        19,303   

Directors’/Trustees’ fees and expenses payable

     724        1,659        648   

Accounting and administration expenses payable to affiliates

     424        995        393   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     31,211,644        75,179,000        30,275,161   
  

 

 

   

 

 

   

 

 

 

Total Net Assets Applicable to Common Shareholders

   $ 75,771,191      $ 173,118,877      $ 68,007,894   
  

 

 

   

 

 

   

 

 

 

Net Assets Applicable to Common Shareholders Consist of:

      

Paid-in capital ($0.001 par value)3,4

   $ 66,918,121      $ 157,931,075      $ 60,617,476   

Undistributed net investment income

     879,977        1,130,256        216,267   

Accumulated net realized loss on investments

     (1,144,152     (1,370,531     (1,386,251

Net unrealized appreciation of investments

     9,117,245        15,428,077        8,560,402   
  

 

 

   

 

 

   

 

 

 

Total Net Assets Applicable to Common Shareholders

   $ 75,771,191      $ 173,118,877      $ 68,007,894   
  

 

 

   

 

 

   

 

 

 

Net Asset Value per Common Share

   $ 15.66      $ 15.05      $ 15.02   
  

 

 

   

 

 

   

 

 

 

1Investments, at cost

     96,213,300        229,270,463        87,105,400   

2Short-term investments, at cost

                   1,000,000   

3Common shares outstanding

     4,837,100        11,504,975        4,528,443   

4Common shares authorized

     200 million        200 million        unlimited   

See accompanying notes, which are an integral part of the financial statements.

 

24


Table of Contents

Statements of operations

Delaware Investments® Closed-End Municipal Bond Funds

Year ended March 31, 2016

 

     Delaware
Investments
Colorado
Municipal
Income
Fund, Inc.
   Delaware
Investments
Minnesota
Municipal
Income
Fund II, Inc.
   Delaware
Investments
National
Municipal
Income
Fund

Investment Income:

              

Interest

     $ 4,538,878        $ 9,740,782        $ 4,286,746  
    

 

 

      

 

 

      

 

 

 

Expenses:

              

Management fees

       416,947          982,829          386,863  

Interest expense

       382,131          955,330          382,131  

Offering costs

       67,935          142,020          110,844  

Rating agency fees

       67,677          59,593          65,395  

Audit and tax fees

       47,602          56,340          40,500  

Dividend disbursing and transfer agent fees and expenses

       40,324          78,775          43,590  

Accounting and administration expenses

       33,625          79,259          31,198  

Legal fees

       31,657          52,551          30,165  

Reports and statements to shareholders

       19,450          40,879          14,585  

Stock exchange fees

       4,762          10,948          4,289  

Directors’/Trustees’ fees and expenses

       3,607          8,288          3,263  

Custodian fees

       3,423          7,982          3,416  

Registration fees

       868          778          868  

Other

       10,450          24,172          19,135  
    

 

 

      

 

 

      

 

 

 

Total operating expenses

       1,130,458          2,499,744          1,136,242  
    

 

 

      

 

 

      

 

 

 

Net Investment Income

       3,408,420          7,241,038          3,150,504  
    

 

 

      

 

 

      

 

 

 

Net Realized and Unrealized Gain (Loss):

              

Net realized gain on investments

       351,677          350,327          398,496  

Net change in unrealized appreciation (depreciation) of investments

       243,591          495,650          96,636  
    

 

 

      

 

 

      

 

 

 

Net Realized and Unrealized Gain

       595,268          845,977          495,132  
    

 

 

      

 

 

      

 

 

 

Net Increase in Net Assets Resulting from Operations

     $ 4,003,688        $ 8,087,015        $ 3,645,636  
    

 

 

      

 

 

      

 

 

 

See accompanying notes, which are an integral part of the financial statements.

 

25


Table of Contents

Statements of changes in net assets

Delaware Investments® Closed-End Municipal Bond Funds

 

     Delaware Investments
Colorado Municipal
Income Fund, Inc.
 
     Year ended  
     3/31/16     3/31/15  

Increase in Net Assets from Operations:

    

Net investment income

   $ 3,408,420      $ 3,415,659   

Net realized gain

     351,677        286,449   

Net change in unrealized appreciation (depreciation)

     243,591        5,080,978   
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     4,003,688        8,783,086   
  

 

 

   

 

 

 

Dividends and Distributions to Common Shareholders from:

    

Net investment income

     (3,458,527     (3,337,599
  

 

 

   

 

 

 
     (3,458,527     (3,337,599
  

 

 

   

 

 

 

Net Increase in Net Assets Applicable to Common Shareholders

     545,161        5,445,487   

Net Assets Applicable to Common Shareholders:

    

Beginning of year

     75,226,030        69,780,543   
  

 

 

   

 

 

 

End of year

   $ 75,771,191      $ 75,226,030   
  

 

 

   

 

 

 

Undistributed net investment income

   $ 879,977      $ 929,143   
  

 

 

   

 

 

 

 

     Delaware Investments
Minnesota Municipal
Income Fund II, Inc.
 
     Year ended  
     3/31/16     3/31/15  

Increase in Net Assets from Operations:

    

Net investment income

   $ 7,241,038      $ 7,370,894   

Net realized gain

     350,327        51,853   

Net change in unrealized appreciation (depreciation)

     495,650        7,966,822   
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     8,087,015        15,389,569   
  

 

 

   

 

 

 

Dividends and Distributions to Common Shareholders from:

    

Net investment income

     (7,248,134     (7,708,333
  

 

 

   

 

 

 
     (7,248,134     (7,708,333
  

 

 

   

 

 

 

Net Increase in Net Assets Applicable to Common Shareholders

     838,881        7,681,236   

Net Assets Applicable to Common Shareholders:

    

Beginning of year

     172,279,996        164,598,760   
  

 

 

   

 

 

 

End of year

   $ 173,118,877      $ 172,279,996   
  

 

 

   

 

 

 

Undistributed net investment income

   $ 1,130,256      $ 1,085,104   
  

 

 

   

 

 

 

 

26


Table of Contents

    

 

    

    

 

     Delaware Investments
National Municipal
Income Fund
 
     Year ended  
     3/31/16     3/31/15  

Increase in Net Assets from Operations:

    

Net investment income

   $ 3,150,504      $ 3,219,861   

Net realized gain

     398,496        622,465   

Net change in unrealized appreciation (depreciation)

     96,636        4,922,383   
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     3,645,636        8,764,709   
  

 

 

   

 

 

 

Dividends and Distributions to Common Shareholders from:

    

Net investment income

     (3,441,617     (3,486,901
  

 

 

   

 

 

 
     (3,441,617     (3,486,901
  

 

 

   

 

 

 

Net Increase in Net Assets Applicable to Common Shareholders

     204,019        5,277,808   

Net Assets Applicable to Common Shareholders:

    

Beginning of year

     67,803,875        62,526,067   
  

 

 

   

 

 

 

End of year

   $ 68,007,894      $ 67,803,875   
  

 

 

   

 

 

 

Undistributed net investment income

   $ 216,267      $ 512,431   
  

 

 

   

 

 

 

See accompanying notes, which are an integral part of the financial statements.

 

27


Table of Contents

Statements of cash flows

Delaware Investments® Closed-End Municipal Bond Funds

Year ended March 31, 2016

 

     Delaware
Investments
Colorado
Municipal
Income
Fund, Inc.
    Delaware
Investments
Minnesota
Municipal
Income
Fund II, Inc.
    Delaware
Investments
National
Municipal
Income
Fund
 

Net Cash Provided by (Used for) Operating Activities:

      

Net increase in net assets resulting from operations

   $ 4,003,688      $ 8,087,015      $ 3,645,636   
  

 

 

   

 

 

   

 

 

 

Adjustments to reconcile net increase in net assets from operations to cash provided by (used for) operating activities:

      

Amortization of premium and accretion of discount on investments

     317,437        1,762,337        431,722   

Amortization of offering costs for preferred shareholders

     (43,444     (8,826     (9,210

Purchase of investment securities

     (10,544,154     (28,201,162     (15,999,619

Proceeds from disposition of investment securities

     9,212,961        27,044,839        16,305,880   

(Purchase of) proceeds from short-term investment securities, net

     400,000               (500,000

Net realized gain on investments

     (351,677     (350,327     (398,496

Net change in net unrealized appreciation (depreciation) of investments

     (243,591     (495,650     (96,636

(Increase) decrease in receivable for securities sold

            (15,165     5,074   

(Increase) decrease in interest receivable

     (106,725     254,869        18,720   

Increase in other accrued expenses receivable

     (2,818              

Increase (decrease) in payable for securities purchased

     (651,587            179,133   

Decrease in investment management fees payable

     (5     (74     (98

Increase in Directors’/Trustees’ fees and expenses payable

     532        1,218        475   

Increase in audit and tax fees payable

     3,186        2,918        3,186   

Increase (decrease) in other affiliates payable

     570        (415     50   

Decrease in other accrued expenses

     (769     (6,828     (6,359
  

 

 

   

 

 

   

 

 

 

Total adjustments

     (2,010,084     (12,266     (66,178
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     1,993,604        8,074,749        3,579,458   
  

 

 

   

 

 

   

 

 

 

Cash Flows Used for Financing Activities:

      

Cash dividends and distributions paid to common shareholders

     (3,458,527     (7,248,134     (3,441,617
  

 

 

   

 

 

   

 

 

 

Net cash used for financing activities

     (3,458,527     (7,248,134     (3,441,617
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (1,464,923     826,615        137,841   

Cash at beginning of year

     1,487,762        (742,208     (9,142
  

 

 

   

 

 

   

 

 

 

Cash at end of year

   $ 22,839      $ 84,407      $ 128,699   
  

 

 

   

 

 

   

 

 

 

Cash paid for interest on leverage

   $ 382,131      $ 955,330      $ 382,131   
  

 

 

   

 

 

   

 

 

 

See accompanying notes, which are an integral part of the financial statements.

 

28


Table of Contents

Financial highlights

Delaware Investments® Colorado Municipal Income Fund, Inc.

Selected data for each share of the Fund outstanding throughout each period were as follows:

 

       Year ended  
        3/31/16      3/31/15      3/31/14      3/31/13      3/31/12  

Net asset value, beginning of period

     $ 15.550       $ 14.430       $ 15.370       $ 15.010       $ 13.370   

Income (loss) from investment operations:

                

Net investment income1

       0.705         0.706         0.700         0.733         0.638   

Net realized and unrealized gain (loss)

       0.120         1.104         (0.935      0.416         1.582   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total from investment operations

       0.825         1.810         (0.235      1.149         2.220   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Less dividends and distributions to common shareholders from:

                

Net investment income

       (0.715      (0.690      (0.690      (0.690      (0.580

Net realized gain

                       (0.015      (0.099        
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total dividends and distributions

       (0.715      (0.690      (0.705      (0.789      (0.580
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value, end of period

     $ 15.660       $ 15.550       $ 14.430       $ 15.370       $ 15.010   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Market value, end of period

     $ 15.070       $ 14.350       $ 13.330       $ 14.840       $ 14.600   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment return based on:2

                

Market value

       10.38%         13.01%         (5.25%      6.92%         22.41%   

Net asset value

       5.85%         13.12%         (0.97%      7.71%         17.19%   

Ratios and supplemental data:

                

Net assets applicable to common shares, end of period (000 omitted)

     $ 75,771       $ 75,226       $ 69,781       $ 74,349       $ 72,613   

Ratio of expenses to average net assets applicable to common shareholders3

       1.52%         1.43%         1.49%         1.44%         0.95%   

Ratio of net investment income to average net assets applicable to common shareholders4

       4.59%         4.65%         4.90%         4.72%         4.46%   

Portfolio turnover

       13%         14%         26%         8%         64%   

Leverage analysis:

                

Value of preferred shares outstanding (000 omitted)5

     $ 30,000       $ 30,000       $ 30,000       $ 30,000       $ 30,000   

Net asset coverage per share of preferred shares, end of period5

     $ 352,571       $ 350,753       $ 332,602       $ 347,829       $ 342,045   

Liquidation value per share of preferred shares5

 

     $ 100,000       $ 100,000       $ 100,000       $ 100,000       $ 100,000   

 

1 

Net investment income is reduced by dividends paid to preferred shareholders from net investment income of $0.079, $0.077, $0.078, $0.079, and $0.031 per share for the years ended March 31, 2016, 2015, 2014, 2013, and 2012, respectively, and from realized capital gains of $0.002, $0.006, and $0.000 per share for the years ended March 31, 2014, 2013, and 2012, respectively.

2 

Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods.

3 

The ratio of expenses to average net assets applicable to common shareholders excluding interest expense for the years ended March 31, 2016, 2015, 2014, 2013, and 2012 were 1.01%, 0.92%, 0.94%, 0.89%, and 0.73%, respectively.

4 

The ratio of net investment income excluding interest expense for the years ended March 31, 2016, 2015, 2014, 2013 and 2012 were 5.11%, 5.16%, 5.45%, 5.27%, and 4.68%, respectively.

5 

In November 2011, the Fund issued a series of 300 variable rate preferred shares, with a liquidation preference of $100,000 per share (Series 2016 Shares). The Series 2016 Shares were redeemed on Feb. 2, 2016 and replaced with Series 2021 Shares, which are the same amount and value as the Fund’s Series 2016 Shares.

See accompanying notes, which are an integral part of the financial statements.

 

(continues)   29


Table of Contents

Financial highlights

Delaware Investments® Minnesota Municipal Income Fund II, Inc.

Selected data for each share of the Fund outstanding throughout each period were as follows:

 

       Year ended  
        3/31/16      3/31/15      3/31/14      3/31/13      3/31/12  

Net asset value, beginning of period

     $ 14.970       $ 14.310       $ 15.270       $ 14.940       $ 13.700   

Income (loss) from investment operations:

                

Net investment income1

       0.629         0.641         0.648         0.715         0.640   

Net realized and unrealized gain (loss)

       0.081         0.689         (0.802      0.345         1.180   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total from investment operations

       0.710         1.330         (0.154      1.060         1.820   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Less dividends and distributions to common shareholders from:

                

Net investment income

       (0.630      (0.670      (0.690      (0.690      (0.580

Net realized gain

                       (0.116      (0.040        
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total dividends and distributions

       (0.630      (0.670      (0.806      (0.730      (0.580
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value, end of period

     $ 15.050       $ 14.970       $ 14.310       $ 15.270       $ 14.940   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Market value, end of period

     $ 14.700       $ 13.850       $ 13.340       $ 15.630       $ 14.230   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment return based on:2

                

Market value

       11.17%         8.97%         (9.26%      15.18%         17.95%   

Net asset value

       5.30%         9.80%         (0.36%      7.18%         13.90%   

Ratios and supplemental data:

                

Net assets applicable to common shares, end of period (000 omitted)

     $ 173,119       $ 172,280       $ 164,599       $ 175,629       $ 171,835   

Ratio of expenses to average net assets applicable to common shareholders3

       1.46%         1.40%         1.51%         1.40%         0.93%   

Ratio of net investment income to average net assets applicable to common shareholders4

       4.24%         4.33%         4.54%         4.65%         4.44%   

Portfolio turnover

       16%         10%         17%         24%         44%   

Leverage analysis:

                

Value of preferred shares outstanding (000 omitted)5

     $ 75,000       $ 75,000       $ 75,000       $ 75,000       $ 75,000   

Net asset coverage per share of preferred shares, end of period5

     $ 330,825       $ 329,707       $ 319,465       $ 334,172       $ 329,113   

Liquidation value per share of preferred shares5

 

     $ 100,000       $ 100,000       $ 100,000       $ 100,000       $ 100,000   

 

1 

Net investment income is reduced by dividends paid to preferred shareholders from net investment income of $0.083, $0.081, $0.076, $0.084, and $0.033 per share for the years ended March 31, 2016, 2015, 2014, 2013, and 2012, respectively, and from realized capital gains of $0.014, $0.005, and $0.000 per share for the years ended March 31, 2014, 2013, and 2012, respectively.

2 

Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods.

3 

The ratio of expenses to average net assets applicable to common shareholders excluding interest expense the years ended March 31, 2016, 2015, 2014, 2013, and 2012 were 0.90%, 0.85%, 0.88%, 0.82%, and 0.70%, respectively.

4 

The ratio of net investment income excluding interest expense to average net assets for the years ended March 31, 2016, 2015, 2014, 2013, and 2012 were 4.80%, 4.88%, 5.17%, 5.23%, and 4.67%, respectively.

5 

In November 2011, the Fund issued a series of 750 variable rate preferred shares, with a liquidation preference of $100,000 per share (Series 2016 Shares). The Series 2016 Shares were redeemed on Feb. 2, 2016 and replaced with Series 2021 Shares, which are the same amount and value as the Fund’s Series 2016 Shares.

See accompanying notes, which are an integral part of the financial statements.

 

30


Table of Contents

    

Delaware Investments® National Municipal Income Fund

Selected data for each share of the Fund outstanding throughout each period were as follows:

 

       Year ended  
        3/31/16      3/31/15      3/31/14      3/31/13      3/31/12  

Net asset value, beginning of period

     $ 14.970       $ 13.810       $ 14.990       $ 14.020       $ 12.620   

Income (loss) from investment operations:

                

Net investment income1

       0.696         0.711         0.710         0.722         0.531   

Net realized and unrealized gain (loss)

       0.114         1.219         (1.180      0.858         1.409   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total from investment operations

       0.810         1.930         (0.470      1.580         1.940   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Less dividends and distributions to common shareholders from:

                

Net investment income

       (0.760      (0.770      (0.710      (0.610      (0.540
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total dividends and distributions

       (0.760      (0.770      (0.710      (0.610      (0.540
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value, end of period

     $ 15.020       $ 14.970       $ 13.810       $ 14.990       $ 14.020   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Market value, end of period

     $ 13.800       $ 13.140       $ 12.350       $ 14.480       $ 13.240   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment return based on:2

                

Market value

       11.32%         12.87%         (9.65%      14.12%         13.19%   

Net asset value

       6.35%         14.99%         (2.41%      11.56%         15.87%   

Ratios and supplemental data:

                

Net assets applicable to common shares, end of period (000 omitted)

     $ 68,008       $ 67,804       $ 62,526       $ 67,876       $ 63,487   

Ratio of expenses to average net assets applicable to common shareholders3

       1.70%         1.60%         1.58%         1.56%         1.02%   

Ratio of net investment income to average net assets applicable to common shareholders4

       4.72%         4.86%         5.17%         4.86%         3.96%   

Portfolio turnover

       25%         38%         40%         42%         101%   

Leverage analysis:

                

Value of preferred shares outstanding (000 omitted)5

     $ 30,000       $ 30,000       $ 30,000       $ 30,000       $ 30,000   

Net asset coverage per share of preferred shares, end of period5

     $ 326,693       $ 326,013       $ 308,420       $ 326,254       $ 311,625   

Liquidation value per share of preferred shares5

 

     $ 100,000       $ 100,000       $ 100,000       $ 100,000       $ 100,000   

 

1 

Net investment income is reduced by dividends paid to preferred shareholders from net investment income of $0.084, $0.083, $0.085, $0.090, and $0.004 per share for the years ended March 31, 2016, 2015, 2014, 2013, and 2012, respectively.

2 

Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods.

3 

The ratio of expenses to average net assets applicable to common shareholders excluding interest expense for the years ended March 31, 2016, 2015, 2014, 2013, and 2012 were 1.13%, 1.03%, 0.96%, 0.96%, and 0.99%, respectively.

4 

The ratio of net investment income excluding interest expense to average net assets for the years ended March 31, 2016, 2015, 2014, 2013, and 2012 were 5.29%, 5.44%, 5.79%, 5.46%, and 3.99%, respectively.

5 

In March 2012, the Fund issued a series of 300 variable rate preferred shares, with a liquidation preference of $100,000 per share (Series 2017 Shares). The Series 2017 Shares were redeemed on Feb. 2, 2016 and replaced with Series 2021 Shares, which are the same amount and value as the Fund’s Series 2017 Shares.

See accompanying notes, which are an integral part of the financial statements.

 

(continues)   31


Table of Contents

Notes to financial statements

Delaware Investments® Closed-End Municipal Bond Funds

March 31, 2016

Delaware Investments Colorado Municipal Income Fund, Inc. (Colorado Municipal Fund) and Delaware Investments Minnesota Municipal Income Fund II, Inc. (Minnesota Municipal Fund II) are organized as Minnesota corporations and Delaware Investments National Municipal Income Fund (National Municipal Fund) is organized as a Massachusetts business trust (each referred to as a Fund and collectively as the Funds). Colorado Municipal Fund, Minnesota Municipal Fund II, and National Municipal Fund are considered diversified closed-end management investment companies under the Investment Company Act of 1940, as amended. The Funds’ shares trade on the New York Stock Exchange MKT, the successor to the American Stock Exchange.

The investment objective of each of the Colorado Municipal Fund and Minnesota Municipal Fund II is to provide current income exempt from federal income tax and from state personal income tax, if any, consistent with the preservation of capital. The investment objective of the National Municipal Fund is to provide current income exempt from federal income tax, consistent with the preservation of capital. Each of Colorado Municipal Fund and Minnesota Municipal Fund II seeks to achieve its investment objective by investing substantially all of its net assets in investment grade, tax-exempt municipal obligations of its respective state at the time of investment. The National Municipal Fund seeks to achieve its investment objective by investing at least 80% of its net assets in securities the income from which is exempt from federal income tax.

1. Significant Accounting Policies

The following accounting policies are in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and are consistently followed by the Funds.

Security Valuation — Debt securities are valued based upon valuations provided by an independent pricing service or broker and reviewed by management. To the extent current market prices are not available, the pricing service may take into account developments related to the specific security, as well as transactions in comparable securities. Valuations for fixed income securities utilize matrix systems, which reflect such factors as security prices, yields, maturities, and ratings, and are supplemented by dealer and exchange quotations. Generally, other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of each Fund’s Board of Directors/Trustees (each a Board, or collectively, the Boards). In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures or suspension of trading in a security.

Federal Income Taxes — No provision for federal income taxes has been made as each Fund intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Funds evaluate tax positions taken or expected to be taken in the course of preparing each Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as a tax benefit or expense in the current year. Management has analyzed each Fund’s tax positions taken for all open federal income tax years (March 31, 2013–March 31, 2016), and has concluded that no provision for federal income tax is required in any Fund’s financial statements.

Cash and Cash Equivalents — Cash and cash equivalents include deposits held at financial institutions, which are available for the Fund’s use with no restrictions, with original maturities of 90 days or less.

Use of Estimates — Each Fund is an investment company, whose financial statements are prepared in conformity with U.S. GAAP. Therefore, each Fund follows the accounting and reporting guidelines for investment companies. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the fair value of investments, the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and the differences could be material.

Other — Expenses directly attributable to each Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Investments Family of Funds are generally allocated among such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Interest income is recorded on the accrual basis. Discounts and premiums on debt securities are accreted or amortized to interest income, respectively, over the lives of the respective securities using the effective interest method. Each Fund declares and pays dividends from net investment income monthly and distributions from net realized gain on investments, if any, annually. Each Fund may distribute more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on the ex-dividend date.

 

32


Table of Contents

    

 

    

    

 

Each Fund may receive earnings credits from its custodian when positive cash balances are maintained, which may be used to offset custody fees. There were no such earnings credits for the year ended March 31, 2016.

2. Investment Management, Administration Agreements and Other Transactions with Affiliates

In accordance with the terms of its respective investment management agreement, each Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee of 0.40% which is calculated based on each Fund’s adjusted average daily net assets.

Delaware Investments Fund Services Company (DIFSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to each Fund. For these services, DIFSC’s fees are calculated based on the aggregate daily net assets of the Delaware Investments® Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DIFSC under the service agreement described above are allocated among all funds in the Delaware Investments Family of Funds on a relative net asset value basis. These amounts are included on the “Statements of operations” under “Accounting and administration expenses.” For the year ended March 31, 2016, each Fund was charged for these services as follows:

 

    Colorado
        Municipal        
Fund
                  Minnesota        
Municipal
Fund II
          National
Municipal
Fund
   

 

 

 

$4,951

 

  

      

 

$

 

11,670

 

 

      

 

$

 

4,594

 

 

As provided in the investment management agreement, each Fund bears a portion of the cost of certain resources shared with DMC, including the cost of internal personnel of DMC and/or its affiliates that provide legal, tax, and regulatory reporting services to each Fund. These amounts are included on the “Statements of operations” under “Legal fees.” For the year ended March 31, 2016, each Fund was charged for internal legal, tax, and regulatory reporting services provided by DMC and/or its affiliates’ employees as follows:

 

    Colorado
        Municipal        
Fund
                  Minnesota        
Municipal
Fund II
 

    

   National
Municipal
Fund
   

 

 

 

$19,627

 

  

      

 

$

 

36,359

 

 

      

 

$

 

18,326

 

 

Directors’/Trustees’ fees include expenses accrued by each Fund for each Director’s/Trustee’s retainer and meeting fees. Certain officers of DMC and DSC are officers and/or Directors/Trustees of the Trust. These officers and Directors/Trustees are paid no compensation by the Funds.

Cross trades for the year ended March 31, 2016, were executed by the Funds pursuant to procedures adopted by the Boards designed to ensure compliance with Rule 17a-7 under the 1940 Act. Cross trading is the buying or selling of portfolio securities between funds of investment companies, or between a fund of an investment company and another entity, that are or could be considered affiliates by virtue of having a common investment advisor (or affiliated investment advisors), common directors/trustees and/or common officers. At their regularly scheduled meetings, the Boards review such transactions for compliance with the procedures adopted by the Boards. Pursuant to these procedures, for the year ended March 31, 2016, the Funds engaged in securities purchases and securities sales, which resulted in net realized losses as follows:

 

    Colorado
        Municipal        
Fund
                  Minnesota        
Municipal
Fund II
 

    

   National
Municipal
Fund
 

 

Purchases

 

 

$2,185,036

    

 

$4,391,260

    

 

$

 

3,650,035

 

  

Sales

    2,585,010        3,950,059        7,621,390   

Net realized gain

                —                    —        178,994   

 

(continues)   33


Table of Contents

Notes to financial statements

Delaware Investments® Closed-End Municipal Bond Funds

    

 

3. Investments

For the year ended March 31, 2016, each Fund made purchases and sales of investment securities other than short-term investments as follows:

 

     Colorado
        Municipal        
Fund
           Minnesota        
Municipal
Fund II
   National
  Municipal  
Fund
 

Purchases

   $10,544,154    $28,201,162    $ 15,999,619   

Sales

       9,212,961      27,044,839      16,305,880   

At March 31, 2016, the cost of investments and unrealized appreciation (depreciation) for federal income tax purposes for each Fund were as follows:

 

    

Colorado
Municipal
          Fund           

  

        Minnesota        
Municipal

          Fund II           

 

National
  Municipal  
      Fund       

Cost of investments

     $ 96,203,884        $ 229,224,489       $ 88,108,640  
    

 

 

      

 

 

     

 

 

 

Aggregate unrealized appreciation of investments

     $ 9,126,661        $ 15,698,502       $ 8,715,481  

Aggregate unrealized depreciation of investments

                (224,451 )       (158,319 )
    

 

 

      

 

 

     

 

 

 

Net unrealized appreciation of investments

     $ 9,126,661        $ 15,474,051       $ 8,557,162  
    

 

 

      

 

 

     

 

 

 

U.S. GAAP defines fair value as the price that each Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. A three-level hierarchy for fair value measurements has been established based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available under the circumstances. Each Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-level hierarchy of inputs is summarized below.

 

Level 1      Inputs are quoted prices in active markets for identical investments. (Examples: equity securities, open-end investment companies, futures contracts, exchange-traded options contracts)
Level 2      Other observable inputs, including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates) or other market-corroborated inputs. (Examples: debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing, broker-quoted securities, fair valued securities)
Level 3      Significant unobservable inputs, including each Fund’s own assumptions used to determine the fair value of investments. (Examples: broker-quoted securities, fair valued securities)

Level 3 investments are valued using significant unobservable inputs. Each Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Valuations may also be based upon current market prices of securities that are comparable in coupon, rating, maturity, and industry. The derived value of a Level 3 investment may not represent the value which is received upon disposition and this could impact the results of operations.

 

34


Table of Contents

    

 

    

    

 

The following tables summarize the valuation of each Fund’s investments by fair value hierarchy levels as of March 31, 2016:

 

Securities

  

Level 2

Municipal Bonds

     $ 105,330,545  
    

 

 

 

Securities

  

Level 2

Municipal Bonds

     $ 244,698,540  
    

 

 

 

Securities

  

Level 2

 

Municipal Bonds

   $ 95,665,802   

Short-Term Investments

     1,000,000   
  

 

 

 

Total Value of Securities

   $ 96,665,802   
  

 

 

 

During the year ended March 31, 2016, there were no transfers between Level 1 investments, Level 2 investments or Level 3 investments that had a material impact to the Funds. The Funds’ policy is to recognize transfers between levels at the beginning of the reporting period.

4. Dividend and Distribution Information

Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Additionally, distributions from net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended March 31, 2016 and 2015 was as follows:

Year ended March 31, 2016

 

     Colorado
Municipal
Fund
     Minnesota
Municipal
Fund II
     National
Municipal
Fund
 

Ordinary income

   $ 3,636       $ 162,911       $ 2,853   

Tax-exempt income

     3,837,022         8,040,553         3,820,895   
  

 

 

    

 

 

    

 

 

 

Total*

   $   3,840,658       $     8,203,464       $   3,823,748   
  

 

 

    

 

 

    

 

 

 
Year ended March 31, 2015   
     Colorado
Municipal
Fund
     Minnesota
Municipal
Fund II
     National
Municipal
Fund
 

Ordinary income

   $       $ 8,847       $ 7,035   

Tax-exempt income

     3,711,728         8,634,809         3,853,995   
  

 

 

    

 

 

    

 

 

 

Total*

   $   3,711,728       $     8,643,656       $   3,861,030   
  

 

 

    

 

 

    

 

 

 

*Distributions to preferred shareholders in this table are part of interest expense and therefore not showed as distributions on the statement of changes in net assets.

 

(continues)   35


Table of Contents

Notes to financial statements

Delaware Investments® Closed-End Municipal Bond Funds

    

 

5. Components of Net Assets on a Tax Basis

As of March 31, 2016, the components of net assets on a tax basis were as follows:

 

    Colorado
Municipal
Fund
    Minnesota
Municipal
Fund II
    National
Municipal
Fund
 

 

Shares of beneficial interest

  $ 66,918,121      $ 157,931,075      $ 60,617,476   

Undistributed tax-exempt income

    879,977        1,130,256        216,267   

Capital loss carryforwards

    (1,153,568     (1,416,505     (1,383,011

Unrealized appreciation on investments

    9,126,661        15,474,051        8,557,162   
 

 

 

   

 

 

   

 

 

 

Net assets

  $ 75,771,191      $ 173,118,877      $ 68,007,894   
 

 

 

   

 

 

   

 

 

 

The differences between book basis and tax basis components of net assets are primarily attributable to tax treatment of market discount on debt instruments and tax deferral of wash sales.

For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of market discount on debt instruments. Results of operations and net assets were not affected by these reclassifications. For the year ended March 31, 2016, the Funds recorded the following reclassifications.

 

    Colorado
Municipal
Fund
    Minnesota
Municipal
Fund II
    National
Municipal
Fund
 

Undistributed net investment income

  $              941      $         52,248      $          (5,051

Accumulated net realized loss

    (941     (52,248     5,051   

For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. In 2015, the Funds utilized capital loss carryforwards as follows:

 

Colorado
Municipal
Fund
   Minnesota
Municipal
Fund II
     National
Municipal
Fund
 
$352,206      $384,943        $ 403,058   

Capital loss carryforwards remaining at March 31, 2016, if not utilized in future years, will expire as follows:

 

Year of Expiration

   Colorado
Municipal
Fund
   Minnesota
Municipal
Fund II
   National
Municipal
Fund
2018    $—    $—    $407,888

On Dec. 22, 2010, the Regulated Investment Company Modernization Act of 2010 (Act) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes were generally effective for taxable years beginning after the date of enactment. Under the Act, the Funds are permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under previous regulation.

 

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Losses that will be carried forward under the Act are as follows:

 

    

Colorado
Municipal
Fund

  

Minnesota
Municipal
Fund II

  

National
Municipal
Fund

Loss carryforward character:

              

Short-term

     $ 163,249        $ 798,305        $ 975,123  

Long-term

       990,319          618,200           

6. Capital Stock

Pursuant to their articles of incorporation, Colorado Municipal Fund and Minnesota Municipal Fund II each have 200 million shares of $0.01 par value common shares authorized. National Municipal Fund has been authorized to issue an unlimited amount of $0.01 par value common shares. Shares issuable under each Fund’s dividend reinvestment plan are purchased by each Fund’s transfer agent, Computershare, Inc., in the open market.

On Jan. 22, 2016, Colorado Municipal Fund, Minnesota Municipal Fund II, and National Municipal Fund successfully issued $30,000,000, $75,000,000 and $30,000,000, respectively, of Variable Rate MuniFund Term Preferred (“VMTP”) Shares with a $100,000 liquidation value per share in a privately negotiated offering. The net proceeds from each offering were used to redeem the Series 2016 (in the case of Colorado Municipal Fund and Minnesota Municipal Fund II) and Series 2017 (in the case of National Municipal Fund) VMTP Shares previously outstanding. The VMTP Shares were offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. Each Fund’s Series 2016 and Series 2017 VMTP Shares were the same amount and value as the respective Fund’s Series 2021 VMTP Shares.

Each of the Funds is obligated to redeem their VMTP Shares on Feb. 1, 2021, unless earlier redeemed or repurchased by a Fund. VMTP Shares are subject to optional and mandatory redemption in certain circumstances. VMTP Shares are redeemable at par. A Fund may be obligated to redeem certain of the VMTP Shares if the Fund fails to maintain certain asset coverage and leverage ratio requirements and such failures are not cured by the applicable cure date. The redemption price per share is equal to the sum of the liquidation value per share plus any accumulated but unpaid dividends. Dividends on the VMTP Shares are set weekly, subject to adjustments in certain circumstances.

The weighted average dividend rates for the year ended March 31, 2016 were as follows:

 

Colorado
Municipal
Fund

  Minnesota
Municipal
Fund II
  National
Municipal
Fund
1.3%   1.3%   1.3%

The Funds use leverage because their managers believe that, over time, leveraging may provide opportunities for additional income and total return for common shareholders. However, the use of leverage also can expose common shareholders to additional volatility. For example, as the prices of securities held by a Fund decline, the negative impact of these valuation changes on common share net asset value and common shareholder total return is magnified by the use of leverage; accordingly, the use of structural leverage may hurt a Fund’s overall performance.

Leverage may also cause the Funds to incur certain costs. In the event that a Fund is unable to meet certain criteria (including, but not limited to, maintaining certain ratings with Fitch Ratings and Moody’s Investors Service (Moody’s), funding dividend payments, or funding redemptions), that Fund will pay additional fees with respect to the leverage.

For financial reporting purposes, the VMTP Shares are considered debt of the issuer; therefore, the liquidation value which approximates fair value of the VMTP Shares is recorded as a liability in the statements of assets and liabilities. Dividends accrued and paid on the VMTP Shares are included as a component of interest expense in the statements of operations. The VMTP Shares are treated as equity for legal and tax purposes. Dividends paid to holders of the VMTP Shares are generally classified as tax-exempt income for tax-reporting purposes.

Offering costs for VMTP Shares are recorded as a deferred charge and amortized over the 5-year life of the VMTP Shares. These are presented as “Offering cost for preferred shareholders” on the “Statements of assets and liabilities” and “Offering costs” on the “Statements of operations.”

7. Geographic, Credit, and Market Risk

The Funds concentrate their investments in securities issued by municipalities. Because each of the Colorado Municipal Fund and the Minnesota Municipal Fund II invest substantially all of its net assets in municipal obligations of its respective state at the time of investment, events in that

 

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Table of Contents

Notes to financial statements

Delaware Investments® Closed-End Municipal Bond Funds

 

7. Geographic, Credit, and Market Risk (continued)

 

state may have a significant impact on the performance and investments of the Colorado Municipal Fund and the Minnesota Municipal Fund II. These events may include economic or political policy changes, tax base erosion, state constitutional limits on tax increases, budget deficits and other financial difficulties, changes in the credit ratings assigned to the state’s municipal issuers, the effects of natural or human-made disasters, or other economic, legislative, or political or social issues. Any downgrade to the credit rating of the securities issued by the U.S. government may result in a downgrade of securities issued by the states or U.S. territories. The National Municipal Fund will be subject to these risks as well but to a lesser extent because it invests at least 80% of its net assets in securities, the income from which is exempt from federal income tax and is not limited to investing substantially all of its assets in municipal obligations of a single state. From time to time and consistent with its investment policies, the National Municipal Fund may invest a considerable portion of its assets in certain municipalities. As of March 31, 2016, the National Municipal Fund has invested 18.91%, 17.81%, 14.52%, 10.87%, and 10.84% (each as a percentage of net assets) in securities issued by the State of California, the State of New York, the Commonwealth of Pennsylvania, the State of Texas, and the State of Arizona, respectively. These investments could make the National Municipal Fund more sensitive to economic conditions in those states than other more geographically diversified national municipal income funds.

Each Fund may invest a percentage of assets in obligations of governments of U.S. territories, commonwealths, and possessions such as Puerto Rico, the U.S. Virgin Islands, or Guam. To the extent a Fund invests in such obligations, that Fund may be adversely affected by local political and economic conditions and developments within these U.S. territories, commonwealths, and possessions.

From time to time, a fund may invest in industrial development bonds (IDBs) or pollution control revenue (PCR) bonds that are issued by a conduit authority on behalf of a corporation that is either foreign owned or has international affiliates or operations. While the bonds may be issued to finance a facility located in the United States, the bonds may be secured by a payment obligation or guaranty of the corporation. To the extent the Fund invests in such securities, that Fund may be exposed to risks associated with international investments. The risk of international investments not ordinarily associated with U.S. investments includes fluctuation in currency values, differences in accounting principles, and/or economic or political instability in other nations.

Many municipalities insure repayment for their obligations. Although bond insurance may reduce the risk of loss due to default by an issuer, such bonds remain subject to the risk that market value may fluctuate for other reasons, and there is no assurance that the insurance company will meet its obligations. A real or perceived decline in creditworthiness of a bond insurer can have an adverse impact on the value of insured bonds held in each Fund. At March 31, 2016, the percentages of each Fund’s net assets insured by insurers are listed below and these securities have been identified on the “Schedules of investments.”

 

Colorado
Municipal
Fund

  Minnesota
Municipal
Fund II
    National
Municipal
Fund
 
   17.60%     2.54%         1.48%    

Each Fund invests a portion of its assets in high yield fixed income securities, which are securities rated BB or lower by Standard & Poor’s (S&P) and/or Ba or lower by Moody’s, or similarly rated by another nationally recognized statistical rating organization. Investments in these higher yielding securities are generally accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment grade securities.

The Funds may invest in advanced refunded bonds, escrow secured bonds, or defeased bonds. Under current federal tax laws and regulations, state and local government borrowers are permitted to refinance outstanding bonds by issuing new bonds. The issuer refinances the outstanding debt to either reduce interest costs or to remove or alter restrictive covenants imposed by the bonds being refinanced. A refunding transaction where the municipal securities are being refunded within 90 days from the issuance of the refunding issue is known as a “current refunding.” “Advance refunded bonds” are bonds in which the refunded bond issue remains outstanding for more than 90 days following the issuance of the refunding issue. In an advance refunding, the issuer will use the proceeds of a new bond issue to purchase high-grade interest-bearing debt securities which are then deposited in an irrevocable escrow account held by an escrow agent to secure all future payments of principal and interest and bond premium of the advance refunded bond. Bonds are “escrowed to maturity” when the proceeds of the refunding issue are deposited in an escrow account for investment sufficient to pay all of the principal and interest on the original interest payment and maturity dates.

Bonds are considered “pre-refunded” when the refunding issue’s proceeds are escrowed only until a permitted call date or dates on the refunded issue with the refunded issue being redeemed at the time, including any required premium. Bonds become “defeased” when the

 

38


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rights and interests of the bondholders and of their lien on the pledged revenues or other security under the terms of the bond contract are substituted with an alternative source of revenues (the escrow securities) sufficient to meet payments of principal and interest to maturity or to the first call dates. Escrowed secured bonds will often receive a rating of AAA from Moody’s, S&P, and/or Fitch Ratings due to the strong credit quality of the escrow securities and the irrevocable nature of the escrow deposit agreement.

To the extent that the Funds invest in securities with longer duration, they may be more sensitive to fluctuation of interest rates.

Each Fund invests in certain obligations that may have liquidity protection designed to ensure that the receipt of payments due on the underlying security is timely. Such protection may be provided through guarantees, insurance policies, or letters of credit obtained by the issuer or sponsor from third parties, through various means of structuring the transaction, or through a combination of such approaches. The Funds will not pay any additional fees for such credit support, although the existence of credit support may increase the price of a security.

Each Fund may invest up to 15% of its net assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A promulgated under the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair each Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Boards have delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of each Fund’s limitation on investments in illiquid securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to each Fund’s 15% limit on investments in illiquid securities. As of March 31, 2016, no securities have been determined to be illiquid under the Funds’ Liquidity Procedures. Rule 144A securities held by each Fund have been identified on the “Schedules of investments.”

When monitoring compliance with the Funds’ illiquid limit, certain holdings that are common to multiple clients of the investment manager may be aggregated and considered illiquid in the aggregate solely for monitoring purposes. For purposes of determining illiquidity for financial reporting purposes, only the holdings of each Fund will be considered.

8. Contractual Obligations

Each Fund enters into contracts in the normal course of business that contain a variety of indemnifications. Each Fund’s maximum exposure under these arrangements is unknown. However, the Funds have not had prior claims or losses pursuant to these contracts. Management has reviewed each Fund’s existing contracts and expects the risk of loss to be remote.

9. Recent Accounting Pronouncements

In May 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-07 regarding “Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share.” The amendments in this update are effective for the Funds for fiscal years beginning after Dec. 15, 2015, and interim periods within those fiscal years. ASU No. 2015-07 will eliminate the requirement to categorize investments in the fair value hierarchy if their fair value is measured at net asset value (NAV) per share (or its equivalent) using the practical expedient in the FASB’s fair value measurement guidance. Management is evaluating the impact, if any, of this guidance on the Funds’ financial statement disclosures.

10. Subsequent Events

Management has determined that no material events or transactions occurred subsequent to March 31, 2016 that would require recognition or disclosure in the Funds’ financial statements.

 

(continues)   39


Table of Contents

Report of independent

registered public accounting firm

To the Board of Directors/Trustees and Shareholders of

Delaware Investments® Colorado Municipal Income Fund, Inc.,

Delaware Investments Minnesota Municipal Income Fund II, Inc., and

Delaware Investments National Municipal Income Fund:

In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations, of changes in net assets and of cash flows, and the financial highlights present fairly, in all material respects, the financial position of Delaware Investments Colorado Municipal Income Fund, Inc., Delaware Investments Minnesota Municipal Income Fund II, Inc., and Delaware Investments National Municipal Income Fund (hereafter referred to as the “Funds”) at March 31, 2016, the results of each of their operations and each of their cash flows for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2016 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations of security purchases had not been received, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

May 26, 2016

 

40


Table of Contents

Other Fund information

(Unaudited)

Delaware Investments® Closed-End Municipal Bond Funds

Tax Information (Unaudited)

The information set forth below is for each Fund’s fiscal year as required by federal income tax laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information.

All disclosures are based on financial information available as of the date of this annual report and, accordingly are subject to change. For any and all items requiring reporting, it is the intention of each Fund to report the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.

For the year ended March 31, 2016, each Fund reports distributions paid during the year as follows:

 

    

(A)

Ordinary
Income
Distributions
 (Tax Basis) 

  

(B)

Tax-Exempt
Income
Distributions
 (Tax Basis) 

  

Total
Distributions
 (Tax Basis) 

Colorado Municipal Fund

             0.09%                99.91%                100.00%   

Minnesota Municipal Fund II

       1.99%           98.01%           100.00%   

National Municipal Fund

       0.07%           99.93%           100.00%   

(A) and (B) are based on a percentage of each Fund’s total distributions.

 

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Table of Contents

Other Fund information

(Unaudited)

Delaware Investments® Closed-End Municipal Bond Funds

 

Fund management

Joseph R. Baxter

Senior Vice President, Head of Municipal Bond Department, Senior Portfolio Manager

Joseph R. Baxter is the head of the municipal bond department and is responsible for setting the department’s investment strategy. He is also a co-portfolio manager of the firm’s municipal bond funds and several client accounts. Before joining Delaware Investments in 1999 as head municipal bond trader, he held investment positions with First Union, most recently as a municipal portfolio manager with the Evergreen Funds. Baxter received a bachelor’s degree in finance and marketing from La Salle University.

Stephen J. Czepiel

Senior Vice President, Senior Portfolio Manager

Stephen J. Czepiel is a member of the firm’s municipal fixed income portfolio management team with primary responsibility for portfolio construction and strategic asset allocation. He is a co-portfolio manager of the firm’s municipal bond funds and client accounts. He joined Delaware Investments in July 2004 as a senior bond trader. Previously, he was vice president at both Mesirow Financial and Loop Capital Markets. He began his career in the securities industry in 1982 as a municipal bond trader at Kidder Peabody and now has more than 20 years of experience in the municipal securities industry. Czepiel earned his bachelor’s degree in finance and economics from Duquesne University.

Denise A. Franchetti, CFA

Vice President, Portfolio Manager, Senior Research Analyst

Denise A. Franchetti is a senior research analyst for the municipal bond department. Currently, she is responsible for following the airport, education, hotel, cogeneration, and cargo sectors for the group. In 2003, she was also named as portfolio manager on the tax-exempt closed-end funds in addition to her research duties. Prior to joining Delaware Investments in 1997 as a municipal bond analyst, she was a fixed income trader at Provident Mutual Life Insurance and an investment analyst at General Accident Insurance. Franchetti received her bachelor’s degree and an MBA from La Salle University. She is a member of the Financial Analysts of Philadelphia.

Gregory A. Gizzi

Senior Vice President, Senior Portfolio Manager

Gregory A. Gizzi is a member of the firm’s municipal fixed income portfolio management team. He is also a co-portfolio manager of the firm’s municipal bond funds and several client accounts. Before joining Delaware Investments in January 2008 as head of municipal bond trading, he spent six years as a vice president at Lehman Brothers for the firm’s tax-exempt institutional sales effort. Prior to that, he spent two years trading corporate bonds for UBS before joining Lehman Brothers in a sales capacity. Gizzi has more than 20 years of trading experience in the municipal securities industry, beginning at Kidder Peabody in 1984, where he started as a municipal bond trader and worked his way up to institutional block trading desk manager. He later worked in the same capacity at Dillon Read. Gizzi earned his bachelor’s degree in economics from Harvard University.

 

42


Table of Contents

Board of trustees / directors and officers addendum

Delaware Investments® Family of Funds

A mutual fund is governed by a Board of Trustees / Directors (“Trustees”), which has oversight responsibility for the management of a fund’s business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. Each trustee has served in that capacity since he or she was elected to or appointed to the Board of Trustees, and will continue to serve until his or her retirement or the election of a new trustee in his or her place. The following is a list of the Trustees and Officers with certain background and related information.

 

Name,

Address,

and Birth Date

 

Position(s)

Held with

Fund(s)

  Length of Time
Served
 

Principal

Occupation(s)

During the

Past Five Years

 

Number of
Portfolios in Fund
Complex Overseen
by Trustee

or Officer

 

Other

Directorships

Held by

Trustee

or Officer

Interested Trustee

                   

 

Shawn K. Lytle1,3

2005 Market Street

Philadelphia, PA 19103

February 1970

 

 

President,
Chief Executive Officer,
and Trustee

 

 

Trustee since
September 2015

 

President and
Chief Executive Officer
since August 2015

 

 

Shawn K. Lytle has served as President of Delaware Investments2 since June 2015 and was the Regional Head of Americas for UBS Global Asset Management from 2010 through 2015.

 

 

 

64

 

 

Trustee —

UBS Relationship Funds, SMA Relationship Trust, and UBS Funds

(May 2010–April 2015)

Independent Trustees

                   

 

Thomas L. Bennett

2005 Market Street Philadelphia, PA 19103 October 1947

 

 

Chairman and Trustee

 

 

Trustee since

March 2005

 

Chairman since

March 2015

 

 

 

Private Investor

(March 2004–Present)

 

 

64

 

 

Director —

Bryn Mawr Bank Corp. (BMTC)

(2007–2011)

 

Ann D. Borowiec

2005 Market Street Philadelphia, PA 19103

November 1958

 

 

Trustee

 

 

Since March 2015

 

 

Chief Executive Officer

Private Wealth Management (2011–2013) and Market Manager, New Jersey Private Bank (2005–2011) — J.P. Morgan Chase & Co.

 

 

 

64

 

 

None

 

Joseph W. Chow

2005 Market Street Philadelphia, PA 19103

January 1953

 

 

Trustee

 

 

Since January 2013

 

 

Executive Vice President (Emerging Economies Strategies, Risks, and Corporate Administration) State Street Corporation (July 2004–March 2011)

 

 

 

64

 

 

Director and Audit Committee Member – Hercules Technology Growth Capital, Inc.

(2004–2014)

John A. Fry

2005 Market Street

Philadelphia, PA 19103

May 1960

  Trustee   Since January 2001  

President —

Drexel University

(August 2010–Present)

 

President —

Franklin & Marshall College

(July 2002–July 2010)

  64  

Director, Audit Committee, and Governance Committee Member — Community Health Systems

 

Director —

Drexel Morgan & Co.

 

 

(continues)   43


Table of Contents

Board of trustees / directors and officers addendum

Delaware Investments® Family of Funds

    

 

Name,

Address,

and Birth Date

 

Position(s)

Held with

Fund(s)

  Length of Time
Served
 

Principal

Occupation(s)

During the

Past Five Years

 

Number of
Portfolios in Fund
Complex Overseen
by Trustee

or Officer

 

Other

Directorships

Held by

Trustee

or Officer

Independent Trustees (continued)

               

 

Lucinda S. Landreth

2005 Market Street

Philadelphia, PA 19103

June 1947

 

 

 

Trustee

 

 

Since March 2005

 

 

Private Investor

(2004–Present)

 

 

64

 

 

None

 

Frances A. Sevilla-Sacasa

2005 Market Street

Philadelphia, PA 19103

January 1956

 

 

Trustee

 

 

Since September 2011

 

 

Chief Executive Officer — Banco Itaú International (April 2012–Present)

 

Executive Advisor to Dean (August 2011–March 2012) and Interim Dean (January 2011–July 2011) — University of Miami School of Business Administration

 

President — U.S. Trust, Bank of America Private Wealth Management (Private Banking) (July 2007-December 2008)

 

 

 

64

 

 

Trust Manager and

Audit Committee

Member — Camden

Property Trust

 

Thomas K. Whitford

2005 Market Street

Philadelphia, PA 19103

March 1956

 

 

Trustee

 

 

Since January 2013

 

 

Vice Chairman

(2010–April 2013)

Chief Administrative Officer (2008–2010) and Executive Vice President and Chief Administrative Officer (2007–2009) — PNC Financial Services Group

 

 

 

64

 

 

Director — HSBC

Finance Corporation

and HSBC North

America Holdings Inc.

 

Director — HSBC Bank

 

Janet L. Yeomans

2005 Market Street

Philadelphia, PA 19103

July 1948

 

 

Trustee

 

 

Since April 1999

 

 

Vice President and Treasurer (January 2006–July 2012)

Vice President — Mergers & Acquisitions

(January 2003–January 2006), and Vice President and Treasurer

(July 1995–January 2003)

3M Corporation

  64  

Director, Audit and

Compliance Committee

Chair,

Investment Committee

Member, and

Governance

Committee Member —

Okabena Company

 

Chair — 3M

Investment Management

Company

(2005–2012)

 

 

44


Table of Contents

    

 

    

    

 

Name,

Address,

and Birth Date

 

Position(s)

Held with

Fund(s)

  Length of Time
Served
 

Principal

Occupation(s)

During the

Past Five Years

 

Number of
Portfolios in Fund
Complex Overseen
by Trustee

or Officer

 

Other

Directorships

Held by

Trustee

or Officer

Officers

               

 

David F. Connor

2005 Market Street

Philadelphia, PA 19103

December 1963

 

 

Senior Vice President,

General Counsel,

and Secretary

 

 

Senior Vice President,

since May 2013;

General Counsel

since May 2015;

Secretary since

October 2005

 

 

David F. Connor has served as Senior Vice President of the Fund(s) and the investment advisor since 2013, General Counsel of the Fund(s) and the investment advisor since 2015, Secretary of the Fund(s) and the investment advisor since 2005.

 

 

 

64

 

 

None3

 

Daniel V. Geatens

2005 Market Street

Philadelphia, PA 19103

October 1972

 

 

Vice President

and Treasurer

 

 

Treasurer since

October 2007

 

 

Daniel V. Geatens has served as Vice President and Treasurer of the

Fund(s) since 2007 and Vice President and Director of Financial Administration of the investment advisor since 2010.

 

 

 

64

 

 

None3

 

Richard Salus

2005 Market Street

Philadelphia, PA 19103

October 1963

 

 

Senior Vice President

and Chief Financial

Officer

 

 

Chief Financial Officer
since November 2006

 

 

Richard Salus has served as Senior Vice President and Chief Financial Officer of the Fund(s) and the investment advisor since 2006.

 

 

 

64

 

 

None3

 

1 

Shawn K. Lytle is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s investment advisor.

2 

Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s investment advisor.

3 

Shawn K. Lytle, David F. Connor, Daniel V. Geatens, and Richard Salus serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor as the registrant.

 

(continues)   45


Table of Contents

About the organization

This annual report is for the information of Delaware Investments® Closed-End Municipal Bond Funds shareholders.

 

Board of directors/trustees

Shawn K. Lytle

President and

Chief Executive Officer

Delaware Investments Family of Funds

Philadelphia, PA

Thomas L. Bennett

Chairman of the Board

Delaware Investments Family of Funds Private Investor

Rosemont, PA

Ann D. Borowiec

Former Chief Executive Officer

Private Wealth Management

J.P. Morgan Chase & Co.

New York, NY

Joseph W. Chow

Former Executive Vice President

State Street Corporation

Boston, MA

John A. Fry

President

Drexel University

Philadelphia, PA

Lucinda S. Landreth

Former Chief Investment Officer

Assurant, Inc.

New York, NY

Frances A. Sevilla-Sacasa

Chief Executive Officer

Banco Itaú International

Miami, FL

Thomas K. Whitford

Former Vice Chairman

PNC Financial Services Group

Pittsburgh, PA

Janet L. Yeomans

Former Vice President and Treasurer

3M Corporation

St. Paul, MN

Affiliated officers

David F. Connor

Senior Vice President, General

Counsel, and Secretary

Delaware Investments Family of Funds

Philadelphia, PA

Daniel V. Geatens

Vice President and Treasurer

Delaware Investments Family of Funds

Philadelphia, PA

Richard Salus

Senior Vice President and

Chief Financial Officer

Delaware Investments Family of Funds

Philadelphia, PA

Investment manager

Delaware Management Company, a series of Delaware Management Business Trust

Philadelphia, PA

Principal office of the Funds

2005 Market Street

Philadelphia, PA 19103-7057

Independent registered public accounting firm

PricewaterhouseCoopers LLP

2001 Market Street

Philadelphia, PA 19103

Registrar and stock transfer agent

Computershare, Inc.

480 Washington Blvd.

Jersey City, NJ 07310

866 437-0252

For securities dealers and financial institutions representatives

800 362-7500

Website

delawareinvestments.com/closed-end

Delaware Investments is the marketing name of Delaware Management Holdings, Inc. and its subsidiaries.

Number of recordholders as of

March 31, 2016

 

Colorado Municipal Income Fund     70   
Minnesota Municipal Income Fund II     356   
National Municipal Income Fund     73   

Your reinvestment options

Each of the Funds offers an automatic dividend reinvestment program. If you would like to reinvest dividends, and shares are registered in your name, contact Computershare, Inc. at 866 437-0252. You will be asked to put your request in writing. If you have shares registered in “street” name, contact the broker/dealer holding the shares or your financial advisor. If you choose to receive your dividends in cash, you may now elect to receive them by ACH transfer. Contact Computershare at the number above for more information.

Each Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. Each Fund’s Forms N-Q, as well as a description of the policies and procedures that each Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 866 437-0252; and (ii) on the SEC’s website at sec.gov. In addition, a description of the policies and procedures that the Funds use to determine how to vote proxies (if any) relating to portfolio securities and the Schedules of Investments included in the Funds’ most recent Forms N-Q are available without charge on the Funds’ website at delawareinvestments.com/closed-end. Each Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330. Information (if any) regarding how each Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Funds’ website at delawareinvestments.com/closed-end; and (ii) on the SEC’s website at sec.gov.

 

 

46




Item 2. Code of Ethics

The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. A copy of the registrant’s Code of Business Ethics has been posted on the Delaware Investments Internet Web site at www.delawareinvestments.com. Any amendments to the Code of Business Ethics, and information on any waiver from its provisions granted by the registrant, will also be posted on this Web site within five business days of such amendment or waiver and will remain on the Web site for at least 12 months.

Item 3. Audit Committee Financial Expert

The registrant’s Board of Trustees/Directors has determined that certain members of the registrant’s Audit Committee are audit committee financial experts, as defined below. For purposes of this item, an “audit committee financial expert” is a person who has the following attributes:

a. An understanding of generally accepted accounting principles and financial statements;

b. The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves;

c. Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant’s financial statements, or experience actively supervising one or more persons engaged in such activities;

d. An understanding of internal controls and procedures for financial reporting; and

e. An understanding of audit committee functions.

An “audit committee financial expert” shall have acquired such attributes through:

a. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions;

b. Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions;



c. Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or

d. Other relevant experience.

The registrant’s Board of Trustees/Directors has also determined that each member of the registrant’s Audit Committee is independent. In order to be “independent” for purposes of this item, the Audit Committee member may not: (i) other than in his or her capacity as a member of the Board of Trustees/Directors or any committee thereof, accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer; or (ii) be an “interested person” of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940.

The names of the audit committee financial experts on the registrant’s Audit Committee are set forth below:

Ann D. Borowiec
Joseph W. Chow
Lucinda S. Landreth1
Frances A. Sevilla-Sacasa

Item 4. Principal Accountant Fees and Services

PricewaterhouseCoopers LLP (“PwC”), the Independent Accountant to the series portfolio of Delaware Investments National Municipal Income Fund (“Fund”), has advised the Audit Committee of the Board of Trustees of the Fund (“Audit Committee”) that, as of the date of the filing of this Annual Report on Form N-CSR, it is in discussions with the staff of the Securities and Exchange Commission (“SEC Staff”), or the SEC, regarding the interpretation and application of Rule 2-01(c)(1)(ii)(A) of Regulation S-X, or the Loan Rule.

The Loan Rule prohibits accounting firms, such as PwC, from having certain financial relationships with their audit clients and affiliated entities. Specifically, the Loan Rule provides, in relevant part, that an accounting firm generally would not be independent if it receives a loan from a lender that is a “record or beneficial owner of more than ten percent of the audit client’s equity securities.” Under the SEC Staff’s interpretation of the Loan Rule, based on information provided to us by PwC, some of PwC’s relationships with its lenders who also own shares of one or more funds within the Delaware Investments Family of Funds investment company complex implicate the Loan Rule, calling into question PwC’s independence with respect to the Fund. PwC believes that, in light of the facts of these lending relationships, its ability to exercise objective judgment with respect to the audit of the Fund has not been impaired.

The Audit Committee has considered the lending relationships described by PwC and has concluded that (1) the lending relationships did not affect PwC’s application of objective judgment in conducting its audits and issuing reports on the Fund’s financial statements; and (2) a reasonable investor with knowledge of the lending relationships described by PwC would reach the same conclusion. In making this determination, the Audit Committee considered, among other things, PwC’s description of the relevant lending relationships and PwC’s representation that its objectivity was not impaired in conducting its audit of the Fund’s financial statements. In connection with this determination, PwC advised the Audit Committee that it believes PwC is independent and it continues to have discussions with the SEC Staff.

If the SEC were ultimately to determine that PwC was not independent with respect to the Fund for certain time periods, the Fund’s filings with the SEC that contain the Fund’s financial statements for such periods would be non-compliant with the applicable securities laws. If the SEC determines that PwC was not independent, among other things, the Fund could be required to have independent audits conducted on the Fund’s previously audited financial statements by another registered public accounting firm for the affected periods. The time involved to conduct such independent audits may impair the Fund’s ability to issue shares. Any of the foregoing possible outcomes potentially could have a material adverse effect on the Fund.

(a) Audit fees.

The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant’s annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $35,920 for the fiscal year ended March 31, 2016.

The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant’s annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $33,100 for the fiscal year ended March 31, 2015.

____________________

1 The instructions to Form N-CSR require disclosure on the relevant experience of persons who qualify as audit committee financial experts based on “other relevant experience.” The Board of Trustees/Directors has determined that Ms. Landreth qualifies as an audit committee financial expert by virtue of her experience as a financial analyst, her Chartered Financial Analyst (CFA) designation and her service as an audit committee chairperson for a non-profit organization.



(b) Audit-related fees.

The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the registrant’s financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended March 31, 2016.

The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the financial statements of the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $667,000 for the registrant’s fiscal year ended March 31, 2016. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: Year end audit procedures. Group reporting and subsidiary statutory audits.

The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the registrant’s financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended March 31, 2015.

The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the financial statements of the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $612,000 for the registrant’s fiscal year ended March 31, 2015. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: year end audit procedures, reporting up, and subsidiary statutory audits.

(c) Tax fees.

The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant were $4,580 for the fiscal year ended March 31, 2016. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and review of annual excise distribution calculations.

The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended March 31, 2016. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.



The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant were $4,214 for the fiscal year ended March 31, 2015. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and review of annual excise distribution calculations.

The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant’s adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended March 31, 2015. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.

(d) All other fees.

The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended March 31, 2016.

The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant’s independent auditors to the registrant’s adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended March 31, 2016. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.

The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended March 31, 2015.

The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant’s independent auditors to the registrant’s adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended March 31, 2015. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.



(e) The registrant’s Audit Committee has established pre-approval policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X (the “Pre-Approval Policy”) with respect to services provided by the registrant’s independent auditors. Pursuant to the Pre-Approval Policy, the Audit Committee has pre-approved the services set forth in the table below with respect to the registrant up to the specified fee limits. Certain fee limits are based on aggregate fees to the registrant and other registrants within the Delaware Investments® Family of Funds.

Service Range of Fees
Audit Services

Statutory audits or financial audits for new Funds

up to $40,000 per Fund

Services associated with SEC registration statements (e.g., Form N-1A, Form N-14, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings (e.g., comfort letters for closed-end Fund offerings, consents), and assistance in responding to SEC comment letters

up to $10,000 per Fund

Consultations by Fund management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be considered “audit-related services” rather than “audit services”)

up to $25,000 in the aggregate

Audit-Related Services

Consultations by Fund management as to the accounting or disclosure treatment of transactions or events and /or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be considered “audit services” rather than “audit-related services”)

up to $25,000 in the aggregate

Tax Services

U.S. federal, state and local and international tax planning and advice (e.g., consulting on statutory, regulatory or administrative developments, evaluation of Funds’ tax compliance function, etc.)

up to $25,000 in the aggregate

U.S. federal, state and local tax compliance (e.g., excise distribution reviews, etc.)

up to $5,000 per Fund

Review of federal, state, local and international income, franchise and other tax returns

up to $5,000 per Fund




Under the Pre-Approval Policy, the Audit Committee has also pre-approved the services set forth in the table below with respect to the registrant’s investment adviser and other entities controlling, controlled by or under common control with the investment adviser that provide ongoing services to the registrant (the “Control Affiliates”) up to the specified fee limit. This fee limit is based on aggregate fees to the investment adviser and its Control Affiliates.

Service Range of Fees
Non-Audit Services
Services associated with periodic reports and other documents filed with the SEC and assistance in responding to SEC comment letters up to $10,000 in the aggregate

The Pre-Approval Policy requires the registrant’s independent auditors to report to the Audit Committee at each of its regular meetings regarding all services initiated since the last such report was rendered, including those services authorized by the Pre-Approval Policy.

(f) Not applicable.

(g) The aggregate non-audit fees billed by the registrant’s independent auditors for services rendered to the registrant and to its investment adviser and other service providers under common control with the adviser were $10,036,000 and $7,530,526 for the registrant’s fiscal years ended March 31, 2016 and March 31, 2015, respectively.

(h) In connection with its selection of the independent auditors, the registrant’s Audit Committee has considered the independent auditors’ provision of non-audit services to the registrant’s investment adviser and other service providers under common control with the adviser that were not required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit Committee has determined that the independent auditors’ provision of these services is compatible with maintaining the auditors’ independence.

Item 5. Audit Committee of Listed Registrants

The registrant has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the registrant’s Audit Committee are Ann D. Borowiec, Joseph W. Chow, Lucinda S. Landreth, and Frances A. Sevilla-Sacasa.

Item 6. Investments

(a) Included as part of report to shareholders filed under Item 1 of this Form N-CSR.



(b) Divestment of securities in accordance with Section 13(c) of the Investment Company Act of 1940.

Not applicable.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies

The registrant has formally delegated to its investment adviser (the “Adviser”) the responsibility for making all proxy voting decisions in relation to portfolio securities held by the registrant. If and when proxies need to be voted on behalf of the registrant, the Adviser will vote such proxies pursuant to its Proxy Voting Policies and Procedures (the “Procedures”). The Adviser has established a Proxy Voting Committee (the “Committee”) which is responsible for overseeing the Adviser’s proxy voting process for the registrant. One of the main responsibilities of the Committee is to review and approve the Procedures to ensure that the Procedures are designed to allow the Adviser to vote proxies in a manner consistent with the goal of voting in the best interests of the registrant.

In order to facilitate the actual process of voting proxies, the Adviser has contracted with Institutional Shareholder Services (“ISS”), which is a subsidiary of MSCI Inc., to analyze proxy statements on behalf of the registrant and other Adviser clients and vote proxies generally in accordance with the Procedures. The Committee is responsible for overseeing ISS’s proxy voting activities. If a proxy has been voted for the registrant, ISS will create a record of the vote. By no later than August 31 of each year, information (if any) regarding how the registrant voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the registrant’s website at delawareinvestments.com; and (ii) on the Commission’s website at sec.gov.

The Procedures contain a general guideline stating that recommendations of company management on an issue (particularly routine issues) should be given a fair amount of weight in determining how proxy issues should be voted. However, the Adviser will normally vote against management’s position when it runs counter to its specific Proxy Voting Guidelines (the “Guidelines”), and the Adviser will also vote against management’s recommendation when it believes that such position is not in the best interests of the registrant.

As stated above, the Procedures also list specific Guidelines on how to vote proxies on behalf of the registrant. Some examples of the Guidelines are as follows: (i) generally vote for shareholder proposals asking that a majority or more of directors be independent; (ii) generally vote against proposals to require a supermajority shareholder vote; (iii) votes on mergers and acquisitions should be considered on a case-by-case basis, determining whether the transaction enhances shareholder value; (iv) generally vote against proposals at companies with more than one class of common stock to increase the number of authorized shares of the class that has superior voting rights; (v) generally vote re-incorporation proposals on a case-by-case basis; (vi) votes with respect to equity-based compensation plans are generally determined on a case-by-case basis; and (vii) generally vote for proposals requesting reports on the level of greenhouse gas emissions from a company’s operations and products.



Because the registrant has delegated proxy voting to the Adviser, the registrant is not expected to encounter any conflict of interest issues regarding proxy voting and therefore does not have procedures regarding this matter. However, the Adviser does have a section in its Procedures that addresses the possibility of conflicts of interest. Most proxies that the Adviser receives on behalf of the registrant are voted by ISS in accordance with the Procedures. Because almost all of the registrant proxies are voted by ISS pursuant to the pre-determined Procedures, it normally will not be necessary for the Adviser to make an actual determination of how to vote a particular proxy, thereby largely eliminating conflicts of interest for the Adviser during the proxy voting process. In the very limited instances where the Adviser is considering voting a proxy contrary to ISS’s recommendation, the Committee will first assess the issue to see if there is any possible conflict of interest involving the Adviser or affiliated persons of the Adviser. If a member of the Committee has actual knowledge of a conflict of interest, the Committee will normally use another independent third party to do additional research on the particular proxy issue in order to make a recommendation to the Committee on how to vote the proxy in the best interests of the registrant. The Committee will then review the proxy voting materials and recommendation provided by ISS and the independent third party to determine how to vote the issue in a manner that the Committee believes is consistent with the Procedures and in the best interests of the registrant.

Item 8. Portfolio Managers of Closed-End Management Investment Companies

The information in the annual report under “Other Fund information – Fund management” is incorporated by reference into this Item 8.

The following chart lists certain information about types of other accounts for which each portfolio manager is primarily responsible as of March 31, 2015, unless otherwise noted. Any accounts managed in a personal capacity appear under “Other Accounts” along with the other accounts managed on a professional basis. The personal account information is current as of June 30, 2014.

No. of Accounts with Total Assets in Accounts
No. of Total Assets Performance- with Performance-
Accounts Managed Based Fees Based Fees
Joseph R. Baxter        
Registered Investment 17 $5.4 billion 0 $0
Companies
Other Pooled 0 $0 0 $0
Investment Vehicles
Other Accounts 43 $3.0 billion 0 $0
Stephen J. Czepiel        
Registered Investment 17 $5.4 billion 0 $0
Companies
Other Pooled 0 $0 0 $0
Investment Vehicles
Other Accounts 40 $3.0 billion 0 $0
Denise A. Franchetti
Registered Investment 3 $451.8 million 0 $0
Companies
Other Pooled 0 $0 0 $0
Investment Vehicles
Other Accounts 2 Under $1 million 0 $0
Gregory A. Gizzi
Registered Investment 17 $5.4 billion 0 $0
Companies
Other Pooled 0 $0 million 0 $0
Investment Vehicles
Other Accounts 47 $3.1 billion 0 $0



DESCRIPTION OF MATERIAL CONFLICTS OF INTEREST

Individual portfolio managers may perform investment management services for other funds or accounts similar to those provided to the Funds and the investment action for such other fund or account and the Funds may differ. For example, an account or fund may be selling a security, while another account or Fund may be purchasing or holding the same security. As a result, transactions executed for one fund or account may adversely affect the value of securities held by another fund, account or Fund. Additionally, the management of multiple other funds or accounts and the Funds may give rise to potential conflicts of interest, as a portfolio manager must allocate time and effort to multiple funds or accounts and the Funds. A portfolio manager may discover an investment opportunity that may be suitable for more than one account or fund. The investment opportunity may be limited, however, so that all funds or accounts for which the investment would be suitable may not be able to participate. The Manager has adopted procedures designed to allocate investments fairly across multiple funds or accounts.

A portfolio manager’s management of personal accounts also may present certain conflicts of interest. While Delaware’s code of ethics is designed to address these potential conflicts, there is no guarantee that it will do so.

Compensation Structure

Each portfolio’s manager’s compensation consists of the following:

Base Salary - Each named portfolio manager receives a fixed base salary. Salaries are determined by a comparison to industry data prepared by third parties to ensure that portfolio manager salaries are in line with salaries paid at peer investment advisory firms.

Bonus - An objective component is added to the bonus for each manager that is reflective of account performance relative to an appropriate peer group or database. The following paragraph describes the structure of the non-guaranteed bonus.

Each portfolio manager is eligible to receive an annual cash bonus, which is based on quantitative and qualitative factors. There is one pool for bonus payments for the fixed income department. The pool is allotted based on subjective factors (50%) and objective factors (50%). The amount of the pool for bonus payments is determined by assets managed (including investment companies, insurance product-related accounts and other separate accounts), management fees and related expenses (including fund waiver expenses) for registered investment companies, pooled vehicles, and managed separate accounts. For investment companies, each manager is compensated according to the Fund’s Lipper or Morningstar peer group percentile ranking on a one, three-, and five-year basis, with longer-term performance more heavily weighted. For managed separate accounts the portfolio managers are compensated according to the composite percentile ranking against the eVestment Alliance, and Callan Associates databases (or similar sources of relative performance data) on a one-, three-, and five-year basis, with longer term performance more heavily weighted. There is no objective award for a fund that falls below the 50th percentile, but incentives reach maximum potential at the top 25th-30th percentile. There is a sliding scale for investment companies that are ranked above the 50th percentile. The remaining portion of the bonus is discretionary as determined by Delaware Investments and takes into account subjective factors.



For new and recently transitioned portfolio managers, the compensation may be weighted more heavily towards a portfolio manager’s actual contribution and ability to influence performance, rather than longer-term performance. Management intends to move the compensation structure towards longer-term performance for these portfolio managers over time.

Portfolio managers participate in retention programs, including the Delaware Investments Incentive Unit Plan, the Delaware Investments Notional Investment Plan, and the Macquarie Group Employee Retained Equity Plan, for alignment of interest purposes.

Delaware Investments Incentive Unit Plan - Portfolio managers may be awarded incentive unit awards (“Awards”) relating to the underlying shares of common stock of Delaware Management Holdings, Inc. issuable pursuant to the terms of the Delaware Investments Incentive Unit Plan (the “Plan”) adopted on November 30, 2010.

The Plan was adopted in order to: assist the Manager in attracting, retaining, and rewarding key employees of the company; enable such employees to acquire or increase an equity interest in the company in order to align the interest of such employees and the Manager; and provide such employees with incentives to expend their maximum efforts. Subject to the terms of the Plan and applicable award agreements, Awards typically vest in 25% increments on a four-year schedule, and shares of common stock underlying the Awards are issued after vesting. The fair market value of the shares of Delaware Management Holdings, Inc., is normally determined as of each March 31, June 30, September 30 and December 31 by an independent appraiser. Generally, a stockholder may put shares back to the company during the put period communicated in connection with the applicable valuation.

Delaware Investments Notional Investment Plan – A portion of a portfolio manager’s retained profit share may be notionally exposed to the return of a portfolio of Delaware Investments Family of Funds-managed funds pursuant to the terms of the Delaware Investments Notional Investment Plan. The retained amount will vest in three equal tranches in each of the first, second and third years following the date upon which the investment is made.

Macquarie Group Employee Retained Equity Plan – A portion of a portfolio manager’s retained profit share may be invested in the Macquarie Group Employee Retained Equity Plan (“MEREP”), which is used to deliver remuneration in the form of Macquarie Group Limited (“Macquarie”) equity. The main type of award currently being offered under the MEREP is units comprising a beneficial interest in a Macquarie share held in a trust for the employee, subject to the vesting and forfeiture provisions of the MEREP. Subject to vesting conditions, vesting and release of the shares occurs in equal tranches two, three, and four years after the date of investment.

Other Compensation - Portfolio managers may also participate in benefit plans and programs available generally to all employees.



Ownership of Securities

As of April 30, 2015, the portfolio managers did not own any shares of the Fund.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers

Not applicable.

Item 10. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 11. Controls and Procedures

The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

There were no significant changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report to stockholders included herein (i.e., the registrant’s second fiscal quarter) that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Exhibits

(a) (1) Code of Ethics

Not applicable.

(2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are attached hereto as Exhibit 99.CERT.

(3) Written solicitations to purchase securities pursuant to Rule 23c-1 under the Securities Exchange Act of 1934.

Not applicable.

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT.



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized.

DELAWARE INVESTMENTS® NATIONAL MUNICIPAL INCOME FUND

/s/ SHAWN LYTLE
By: Shawn Lytle
Title: President and Chief Executive Officer
Date:      June 6, 2016

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ SHAWN LYTLE
By: Shawn Lytle
Title: President and Chief Executive Officer
Date:      June 6, 2016
 
/s/ RICHARD SALUS
By: Richard Salus
Title: Chief Financial Officer
Date: June 6, 2016